Monday, April 27, 2009

>Trade Winds (KARVY)

Markets continue to rally......

The BSE Sensex and the broader-based Nifty closed positively for the seventh consecutive week, something which they have achieved for the fi rst time since October 2007. While in a surprise move, the RBI cut repo and reverse repo rates, the corporate results did not bring in any major surprises, either positive or negative. Moreover, with mixed cues emanating from the developed markets, the Indian markets continued to display increased intraday volatility, and this is only bound to increase from current levels as we approach the much awaited general election results on May 16, which is expected to bring about one of the most fractured verdicts in India’s history.

For the week, the Sensex and the Nifty rose 2.78% and 2.85%, respectively. Since the rally began on March 9, the Sensex jumped nearly 40%, while the Nifty rose more than 35%. The spectacular rally has come as a surprise for market participants, many of who may be disappointed for having missed the bus, but at the same time, has raised hopes for most that the worst is probably over.

Last week, the RBI cut the repo and reverse repo rates by 25 bps each, the timing and announcement of which came as a surprise for the markets. This decision by the RBI seems to be a conscious attempt to boost faltering growth in the face of the global economic slowdown. The central bank also reiterated a call to banks to pass on its rate cuts to customers. Lower interest rates, coupled with stimulus measures and lower commodity prices, could push up investment demand and lead to a positive impact in industrial production in the coming months.

Overall, the Nifty is likely to trade in a range of 3300-3520-3650 this week, with an intermediate resistance placed at 3520 levels, which will also provide a major breakout, resulting in a short squeeze. With derivatives expiry lined up this week, investors should trade cautiously and look towards buying on dips. Cement, telecom and BFSI stocks can be considered for assuming long positions whereas energy and metal stocks can be shorted from higher levels.

To see full report: TRADE WINDS