Archives : BUDGET : LONG ON VISION, SHORT ON ROADMAP - 11/07/2014.

BUDGET : LONG ON VISION, SHORT ON ROADMAP –  11/07/2014.

FISCAL CONSOLIDATION – THEME OF BUDGET.

The theme of the maiden Budget presented by the Modi Government was Growth and Fiscal Consolidation. The reform agenda was broad based, with a focus on improving Infrastructure, Manufacturing, Financial, Real Estate and Agriculture sectors.  Some of the positives that came out of this Budget are listed under.

  1. Fiscal Deficit target has been kept unchanged at 4.1% for the current year, with intent to achieve 3% by FY2017.

  2. With regards to Inflation, the Budget provided measures such as greater investment in Agriculture sector to boost productivity and also address the problem of wage price spiral.

  3. The FM hopes to implement Goods and Service Tax GST to improve tax revenues.

  4. The need for Recapitalisation of PSU banks was also highlighted.

  5. To boost foreign capital flows, the FDI limits in Defence and Insurance sector were raised to 49%.

  6. To encourage consumption, the Budget provided exemptions on Income tax limits.

IN RIGHT DIRECTION, BUT MISSING ROADMAP.

As can be seen the Union Budget is having a strong vision but is little over optimistic. Listed below are some of the areas where the Budget promises more, but fails to provide the required roadmap.

  1. One of the major surprises was the FM sticking to the Fiscal Deficit target of 4.1% for the current year. This not only sounds over optimistic but even unrealistic as the fiscal mathematics fails to add to get to the target of 4.1%. It seems very challenging as no explanation is provided as to how 19.7% revenue growth in FY15 will materialize, besides which there is no mention of trimming the total expenditure bill.

  2. The need to recapitalise the PSU banks was acknowledged but there were no specifics on where the required funds will be procured from.

  3. The need for introducing GST was acknowledged but the FM failed to give a timeline for its implementation.

SELL – OFF ON EXPECTED LINES.

It was clearly pointed out in the previous week’s article that there is little room for error and the market will leap at the slightest excuse to correct itself. That was exactly what happened. As a result, the much awaited Correction has started and it will intensify if Nifty breaches 7441. The relevant Correction levels are 7361-7223-7085 for the Nifty. The short term trend has turned down but the long term trend still remains up.

 

 


BUDGET : LONG ON VISION, SHORT ON ROADMAP –  11/07/2014.

FISCAL CONSOLIDATION – THEME OF BUDGET.

The theme of the maiden Budget presented by the Modi Government was Growth and Fiscal Consolidation. The reform agenda was broad based, with a focus on improving Infrastructure, Manufacturing, Financial, Real Estate and Agriculture sectors.  Some of the positives that came out of this Budget are listed under.

  1. Fiscal Deficit target has been kept unchanged at 4.1% for the current year, with intent to achieve 3% by FY2017.

  2. With regards to Inflation, the Budget provided measures such as greater investment in Agriculture sector to boost productivity and also address the problem of wage price spiral.

  3. The FM hopes to implement Goods and Service Tax GST to improve tax revenues.

  4. The need for Recapitalisation of PSU banks was also highlighted.

  5. To boost foreign capital flows, the FDI limits in Defence and Insurance sector were raised to 49%.

  6. To encourage consumption, the Budget provided exemptions on Income tax limits.

IN RIGHT DIRECTION, BUT MISSING ROADMAP.

As can be seen the Union Budget is having a strong vision but is little over optimistic. Listed below are some of the areas where the Budget promises more, but fails to provide the required roadmap.

  1. One of the major surprises was the FM sticking to the Fiscal Deficit target of 4.1% for the current year. This not only sounds over optimistic but even unrealistic as the fiscal mathematics fails to add to get to the target of 4.1%. It seems very challenging as no explanation is provided as to how 19.7% revenue growth in FY15 will materialize, besides which there is no mention of trimming the total expenditure bill.

  2. The need to recapitalise the PSU banks was acknowledged but there were no specifics on where the required funds will be procured from.

  3. The need for introducing GST was acknowledged but the FM failed to give a timeline for its implementation.

SELL – OFF ON EXPECTED LINES.

It was clearly pointed out in the previous week’s article that there is little room for error and the market will leap at the slightest excuse to correct itself. That was exactly what happened. As a result, the much awaited Correction has started and it will intensify if Nifty breaches 7441. The relevant Correction levels are 7361-7223-7085 for the Nifty. The short term trend has turned down but the long term trend still remains up.

TECHNICALLY SPEAKING.

Sensex opened the week at 26039, made a high of 26190, low of 24978 and closed the week at 25024. Thus it closed the week with a heavy loss of 938 points. At the same time the Nifty opened the week at 7780, made a high of 7808, low of 7447 and closed the week at 7459. Thus the Nifty closed the week with a loss of 292 points.

Both the indices have completed a Bearish Engulfing on the weekly charts. This is a bearish reversal pattern and suggests that the short term trend has turned down. On the daily charts, both the Sensex and Nifty have formed a big black body candle on Friday which is the fourth consecutive bearish candle. Thus daily as well as weekly charts suggest bearishness in the near term.

As a result of this week’s market action, the much awaited Correction has started and it will intensify once Nifty closes below 7441. In the immediate term one needs to consider the rally from low of Sensex 22277 and Nifty 6628. The relevant Correction levels are 24695-24233-23771 for the Sensex and 7361-7223-7085 for the Nifty. On a higher timeframe, we need to consider the rally from low of Sensex 19963 and Nifty 5933. The relevant Correction levels are thus placed at Sensex 23811-23076-22341 and Nifty 7092-6871-6649.

The 38.2% Retracement level of the immediate correction (Sensex 24695 and Nifty 7361) and an intermediate bottom (Sensex – 24644 and Nifty 7360) are forming a confluence zone. Thus Sensex 24695-24644 and Nifty 7361-7360 will act as strong Support zone. A breach of this Support zone will turn the medium term trend down.

On a higher scale, a very strong Support zone is formed between Sensex 23811-23729 and Nifty 7092-7067. This is a result of confluence of 38.2% Retracement of the higher rally (Sensex – 23811 and Nifty 7092), 61.8% Retracement of the immediate rally (Sensex – 23771 and Nifty 7085) and the start of the intermediate Bullish Rising Gap (Sensex 23729 and Nifty 7067). The long term trend will continue to remain bullish as long as this Support zone is held.

This week, both Sensex and Nifty have completed a Rising Wedge pattern. A bearish breakout was achieved when Sensex closed below 25450. This is a leading bearish reversal pattern which suggests that the Sensex is now headed towards a target of 24231 and Nifty 7180.

This week both Sensex and Nifty have closed below the short term average of 20dma (Sensex – 25411 and Nifty – 7594). However, they both continue to remain above the medium term average of 50dma (Sensex – 24733 and Nifty – 7386) and the long term average of 200dma (Sensex – 21983 and Nifty – 6549). Thus the trend in the short term timeframe has turned bearish while that in the medium term and the long term timeframe continues to remain up.

MACD and ROC both continue in Sell mode. RSI (44) also suggests bearish momentum. Stochastic Oscillator also continues in Sell mode as %K is below %D. The MFI also continues to remain below the equilibrium line suggesting negative money flow. OBV has given a Sell signal as it closed below the previous bottom. The Buy signal in Bollinger Band got negated this week when the indices closed below the mean. Interestingly RSI, MACD and MFI are showing negative divergence of the first degree. Thus Oscillators are indicating bearishness in the short term.

Options data suggests that the market is expecting a trading range between 7800 and 7300. Friday saw strong buildup at 7500 Call which indicates strong resistance there.

For the week ahead, Sensex will find Support at 24644-24156-23729 and will find Resistance at 25375-25735-26190.

For the week ahead, Nifty will find Support at 7353-7206-7118 and will find Resistance at 7563-7700-7808.

INDEX LEVELS:

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

7118

7206

7353

7459

7563

7700

7808

Sensex

23729

24156

24644

25024

25375

25735

26190

LAST WEEKS RECOMMENDATIONS:

STOCK

Reco. Price

Tgt

Reached

Lot Size

Profit

Buy OFSS

3191

3271

3230

125

Rs. 4,875

ConCorp

1270

1369

1410

250

Rs.35,000

JsWHldg

865

915

865

500

Rs. -

Buy REC

374

385

383

1000

Rs. 9,000

Buy ITI

32

40

43

8000

Rs.88,000

Total

Rs.1,36,875

.
THIS WEEKS RECOMMENDATIONS:
.

STOCK

CMP

SL

Tgt-1

Tgt-2

Sell SBI

2425

2461

2364

2301

Sell Siemens

855

872

826

796

Sell HPCL

377

390

352

326

Sell SyndicateBnk

142

146

136

130

Sell AmbujaCem

214

218

208

201

WATCH OUT FOR:

Siemens

Uco

Disclaimer : The recommendations made herein do not constitute an offer to sell or a solicitation to buy any of the securities mentioned. No representations can be made that the recommendations contained herein will be profitable or that they will not result in losses. Readers using the information contained herein are solely responsible for their actions. Information is obtained from sources deemed to be reliable but is not guaranteed as to accuracy and completeness.

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