The Bullish Hammer formation on the weekly charts was nothing but a precursor of the victory of the UPA government in the Trust Vote battle in the parliament. People on the streets usually are clueless and do only guess work, but Technical Analysis of the Sensex and Nifty charts were suggesting a rally and hence the UPA government had to win. Finally the Singh is King.
Let us analyse what the macro picture suggests for our economy and for that we need to consider fundamental factors like Political Uncertainty, Crude Oil prices, Inflation, FII fund flows and Corporate Results.
Political Suspense Ends:
Finally the Political Uncertainty has ended, with the Left being shown the door. The Congress decided that it was time for some action and went ahead with the commitment towards the Nuclear deal and in the process ended its marriage with the Left. In hindsight, it seems that the Congress has worked out a master stroke, as it would now be able to push ahead with its promised economic reforms. It will now be possible to rectify some pending problems and build a good image in the eyes of the public. Market certainly likes a government, without the string pulling by the Left as was visible in the follow up rally, post result of the Trust vote.
Crude Oil which was in an unprecedented Bull Run of its own has started showing signs of cooling off and has already fallen by more than 18%. After making an intermittent top at $148 per barrel, the Crude Oil prices has retraced to $124 per barrel, as the political tension prevailing between Iran and the U.S. eased substantially. It is a very big positive for emerging economies like ours.
Inflation once again came under 12%, in fact the inflation figure came below what the market expected. If this trend continues, then the chances of further increase in the interest rate would diminish somewhat. This is a very big positive for the already battered market and would not damage the Corporate Profitability further.
FII Fund Flows:
The unabated selling from the FII’s is almost over, as they have turned into buyers in the Indian market once again. The valuations are appearing to be attractive and hence they have started cherry picking quality stocks at very low valuations.
Corporate results have been strictly average and they are nothing worth cheering home about. But one positive thing we can draw from our market is that unlike in the U.S., where every month some Financial Major comes under cloud and brings their market to its knees, there has been none reported so far.
The only conclusion that we can draw fundamentally is that the market seems to have factored in all possible bad news and is now trying to move beyond that. It will be difficult to expect any out-performance this year, but we can certainly hope for some better tidings for the market in the short to medium term.
If we expect a reasonable Corporate Growth rate of around 10 to 15% next year, then one can certainly vouch for a FY-09 EPS of 950 to 1000 for the Sensex. Then applying a reasonable PE multiple of 12 to 16, will give us a reasonable valuation band of 12000 to 16000 for the Sensex going forward. This will be a good, broad range for the market and will provide good trading and investment opportunities.
Technically speaking the Sensex and Nifty have both formed a Bullish Reversal Pattern in the form of a Hammer on the Weekly charts. Even the monthly charts, which are attached below, suggest formation of a Hammer and a strong trendline support. If one joins the Trendline from May 2004 lows to May 2005 lows, then one sees that this supporting Trendline has not been violated, though it has been tested several times. This time too, if you observe from the charts given below the trendline has provided excellent support and the market have moved up from there. Both the Sensex and Nifty has respected this Trendline. It is unlikely that the market will break this support. Trendline Support for the Sensex is at 13865 and for the Nifty is at 4164. The Trendline Resistance for the Sensex is at 15081 and for the Nifty is at 4526.
The Daily ROC, which is now in the positive and has given a Buy signal, and has given a momentum breakout and as a result of which the market actually rallied. The correction is nothing but a pause and the momentum will start again in the short term. Sensex will have Retracement targets of 15834-16860-17886, and Nifty will have 4770-5074-5377 as the Retracement targets.
The OI PCR is healthy at 1.40 suggesting presence of hedge positions. The PUT writing at the strikes of 4100 and 4000 suggest strong support for the market at that strike prices.
RESISTANCE & SUPPORT:
Sensex Resistance 14484-14608-15081. Support 14131-13822-13581.
Nifty Resistance 4369-4526-4746. Support 4253-4164-4076.
LAST WEEK’S RECOMMENDATIONS:
At the cost of sounding Boring and Repetitive, all our recommendations hit Bull’s Eye. All our readers must have made handsome Profits. If one had bought 2000 shares each of NTPC & NALCO, 3000 shares of HCC, 400 shares of REL, 100 shares of L&T, then one could have earned a Profit of Rs 48,000 in NTPC, Rs 1,82,000 in NALCO, Rs 36,000 in HCC, Rs 84,800 in REL, Rs 26,700 in L&T, TOTAL PROFIT Rs. 3,95,500/- in Just ONE WEEK’S TIME.
BUY NTPC 173 TGT 193 REACHED 197.
BUY NALCO 357 TGT 398 REACHED 448.
BUY HCC 85 TGT 94 REACHED 103.
BUY REL 858 TGT 892 REACHED 1070.
BUY L&T 2547 TGT 2662 REACHED 2814.
THIS WEEK’S RECOMMENDATIONS:
BUY BRFL 334 SL 322 TGT 346-360-373.
BUY RENUKA 123 SL 118 TGT 129-135.
BUY JP HYDRO 54 SL 52 TGT 57-60.
BUY MRPL 67 SL 65 TGT 71-75.
BUY NEYVELLI LIGNITE 120 SL 117 TGT 125-129.
BUY SASKEN COMM 154 SL 149 TGT 164-172.