Thursday, July 28, 2011

EOD Analysis for 27th July 2011 and Outlook for 28th July 2011

So yet again we saw a good manipulative expiry; the volumes again were pretty high and Nifty Futures OI stood at 29.5 million through out the day. The options data tend to generate a lot of noise and especially during expiry, leave a lot of people confused [I am no expert but during expiry, it does get very difficult to say which side it will go to] and hence my advice is to stay out.

We have had 3 days of non-stop carnage on Nifty and Banknifty and Banknifty is well below the 11k mark. Global cues are weak and we may see some more downside; 5480 levels did provide support but I wouldn't read too much into today's EOD as the figures are manipulated for FnO expiry.

Way forward - It needs to be seen how much effort Nifty will put in to overcome the 5532 levels for the next 2 to 4 trading sessions; historical evidence from 2011 suggests that whenever we have had EODs below 5532, Nifty does need a lot of effort to overcome the 5532-5550 zone on EOD basis. I still maintain that these corrections are healthy and are providing good buying opportunities in some attractively valued stocks in Banking, Automotive segments and consumption related. From a portfolio perspective, one should now decrease allocation to IT [maximum 20% allocation advised in this sector]. The Indian banking system is very robust at this point of time and although credit growth is considered slow, the broader picture shows something different

1 - Credit Growth is slower with respect to Credit Growth Indian banks witnessed last year. The reason for that is obvious - the interest rates were much lower and top notch corporates used banks as a funding vehicle. However, the housing loan scam to Realty Companies did take a toll  and with almost 150 bps hike in interest rates QoQ basis, and a higher base effect all contributed to the slowdown vis a vis India

2 - From a global perspective, Indian Banks Credit Growth is still one of the highest and the assets are AAA grades unlike US or major European Banks where the assets have a high level of toxic elements.

Banks will lead in the last pending rally of 2011 and to the extent 10500 level holds out on EOD basis on Banknifty, one can safely assume that the process of accumulation is in process. Banknifty has a pending target of 13500 for 2011; however a lot of this upside will come after monsoon session in August and towards end of September. Smart money always looks for some political stability to increase allocation in emerging countries.

The crucial dates for August have already been provided; proposed price actions will be updated over the weekend after tomorrow's EOD figures.

Broadly speaking, 5408-5440 zone will provide opportunities to Buy Nifty August Futures. Retail traders should only resume trading from Monday. For Banknifty, the Buy levels are 10600-10750 in tranches and one should avoid shorting Banknifty at this point of time. As of now, I expect falls in Banknifty to be arrested within the 10600-10660 zone itself. Safe traders can wait for retest of 10600 levels and take long positions on subsequent retracements above 10700-750 in tranches. Shorts should only be opened in the 11250-11425 zone depending on other market conditions.

Last month, I consistently recommended Sell on Rise; for first week of August, my recommendation is now Buy on Dips as the Risk Reward Ratio is in favor of Longs at least in the initial part of August series.

As of now I don't expect falls to go beyond 5408 on EOD basis; however, if we do get a close below 5408 on Nifty on EOD basis, we open for 5348;5280;5225;5177;5092 (Last hope for any pullback)
Below 5177, the pending bull party will in all likelihood be incomplete for a long time to come.

It would be time to keep watching the portfolios and start redeeming units in profits as the maximum upside will then get capped to 5890-5944 levels in all likelihood for the rest of 2011; so even if one buys on dips, one should look for opportunities to exit profitably in the 57/5800 levels and with minimal losses.

The medium term outlook is bullish and corrections in such conditions are rapid and furious. The dips would be bought into and I am personally optimistic about the tide turning by end of August and mid-September to the upside. Long term Nifty targets remain intact as follows for now

2011: A new high above 6400 [Sensex Target of 22500]
2012: A Fall towards 4850 [First half of 2012]
2013: A Fall towards 4350 [End of 2012 or Early 2013]
2014: A Rise above 7k levels [Sensex Target of 34000]

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