Market watch: Q2 earnings hold key this week

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It was a brutal week for stocks, with investors losing faith in economies and political leaders around the world.

After three straight weeks of gains the benchmark indexes the Sensex and the Nifty fell sharply by 772 points and 216 points closing at 16,162 and 4,868 respectively.

Expectedly market breadth was very weak and several stocks continued to touch 52-week lows. With the rupee weakening in a spectacular fashion against the dollar concerns over costly imports and FII inflows are back. With inflation remaining stubbornly high despite repeated rate hikes by the RBI, observers expect GDP growth to moderate more than expected.

New fears that there could be a period of deflation triggered sell off in gold and silver which have benefitted from economic uncertainty in recent months. Further weaknesses on lack of demand likely in the near term say commodity players.

US markets posted their worst weekly performance since October 2008. With the Fed’s weak economic outlook rattling investors, Operation Twist was ignored. Investors want action and not just commitment statements like one made at G20 finance ministers meet.

Focus will be on F&O settlement and Q2 earnings season in the coming week. Bad news and biggest concerns are now mostly priced in, avoid fresh shorts for present. For the week ahead, chartists predict trading range of 15,750-16,475 for the Sensex and 4,675-5,050 for the Nifty.

Immediate supports are at 16,000 and 15,800 and 4,800 to 4,720.Critical resistance zones for any short covering rally are at 16,500-16,650 and 4,950-5,050. One way of successful investing is to have nerve and knowledge to buy good value stocks when they are dumped i.e. try to buy when stocks have few friends.

Futures & Options

Derivative segment witnessed spike in volumes on the back of heightened volatility. Though there was no significant change in open interest at Rs 1,38,000 crore, volumes in some sessions were close to Rs 2,00,000 crore.

*Sentiment indicators such as put/call ratio, open interest, implied volatility and VIX suggest a pullback rally in near term.

*Punters of Nifty futures feel expiry will be in the range of 4,950-5,050. Stocks from capital goods, metals, oil and gas, auto and realty sectors witnessed savage cuts.

*Contrarians suggest buying in tranches in capital goods and auto counters. Lower raw material prices to benefit these sectors in coming quarters.

*Buy BHEL, Cummins (I) and L&T closer to Rs 1,450, Rs 350 and Rs 1,350.

*Weakness in rupee negated possible gains from fall in international crude oil prices to oil marketing companies.

*Sharp fall in metal prices at LME on worries about global economy triggered fresh round of selling in metal stocks.

*Stay away till brightens. One sector that has shown unusual resilience in an otherwise uncertain market has been cement.

*Buy on declines ACC, Ambuja and India Cements. On the back of strong appreciation of dollar IT stocks were back in favour.

*Stay invested and add on declines Infosys, TCS, HCL Tech and Patni Computers ahead of Q2 numbers.