Markets to take cues from Chinese data, US Fed meet

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Spooked by global concerns about the United States economy and the European debt crisis, markets after violently whipsawing throughout the week ended very weak and jittery.

All three major indexes of the United States had their worst week since the darkest months of 2008-09 financial crises.

On the BSE the Sensex closed 891 points lower at 17,306 and the Nifty on the NSE finished at 5,211 losing 271 points. The ratio of stocks touching 52-week high/low at 35/578 on BSE reflects the pessimism and fear on the street.

The weekend downgrade of the US debt by Standard & Poor has heightened tension over how stocks, bond market and currency market will react to the decision next week.

Though it is too early to assess impact on India, many analysts feel that it will be very limited. Some say that fall in global commodity prices and improvement in agricultural productivity will make India attractive destination again.

Expectedly FIIs were in sell mode, while DIIs were in buy mode lending support to markets at lower levels.

Near term direction of markets will be dictated by global events and response of Indian government to them. Observers say that Indian politicians should learn lessons from the bitter outcome of fight between Republicans and Democrats in the US over debt ceiling legislation; and see that important bills are passed in parliament in the ongoing session.

Coming week may see markets react to the US Fed meet, Chinese data and June IIP numbers.
For the week ahead, the last week lows on indexes at 16,991 and 5,116 will be the pivots. Close below these levels may see indexes fall to 16,650 and 5,000 levels.

A rebound from the current levels may see indexes climb to 17,580 and 17,800 and 5,320 and 5,400 levels. . Investment opportunity consists of the difference between the value and perception.

Try to buy when stocks have few friends. It is possible to find something tradable that is seriously mispriced and profit from that anomaly only at times of panic.

Futures & Options

Mirroring the panic and fear in the cash market, the derivative segment witnessed heightened volatility. Intraday moves of 5-10 per cent in many stock futures have become very common. Sensing the weak undercurrent market players were seen protecting their long positions by buying index put options.

Option activity indicates range of 5,100-5,500 for the Nifty. Be just as willing to sell short as you are to buy say old timers. Though the current meltdown has made many stocks attractive, avoid stocks that have crashed in earlier downturns and failed to recover in the subsequent rallies. Reliance Infra, LITL, JP Associates are examples of such stocks.

A possibility of double dip recession in the US triggered sharp selling in technology stocks. Avoid for present. Further correction in commodities from current levels may trigger buying interest in rate sensitive stocks. Use sharp corrections to buy Bajaj Auto, Hero Moto Corp, HDFC Bank, ICICI Bank and InduSind Bank.

After resilient show in the past few weeks telecom counters witnessed profit booking. Buy at lower levels Bharti Airtel and Idea. Expectedly FMCG counters proved to be good defensive bets. Stay invested in HUL and ITC.

Oil marketing companies IOC, BPCL and HPCL sparkled on fall in international crude oil prices. Buy after announcement of results in the week ahead. Stock futures looking good are IRB Infra, Exide Inds, IGL and Petronet LNG. Stay logged to “debt free” counters like Exide Inds.

The market is most dangerous when it looks best; it is most inviting when it looks worst. When opinions in stock market are too unanimous — Beware! The market is famous for doing the unexpected. Risk control should not be confused with fear of risk.

Stock scan

Sundaram Fasteners Limited and Whe-els India Ltd are a part of the TVS group manufacturing automotive and engineering components.

Sundaram Fasteners Ltd currently has manufacturing operations located in India, UK, Germany and China and has become a supplier of choice to leading customers in the automotive and industrial segments worldwide. Excellent Q1 results and weakening raw material prices spell good times for the company. Buy on declines for target price of Rs 90 in medium term.

Wheels India Limited is leading manufacturer of steel wheels for passenger cars, utility vehicles, trucks, buses, agricultural tractors and construction equipment.

The company supplies two-third of the domestic market requirement and exports 18 per cent of the turnover to several countries. Buy this value counter for target price of `400 in medium term.