We have seen heightened market volatility across the asset classes
– Currency, Debt and Equity – since the statement made by Fed Chairman which
hinted at a possible tapering of the QE3 program. RBI and the centre have since
tried to stabilize the INR volatility through various measures including
increasing FDI Caps in 12 sectors, increasing restriction on gold imports and
various liquidity tightening measures. The later has led to sharp increase in
short term rates. On Wednesday it announced yet another series of measures
which involved clamping down on overseas investments. However it has had little
impact on the markets as strong job data from US is leading to speculation of
QE3 tapering possibility from next month. Although, major impact of QE tapering
has been played out but in short term it will impact equity market across the
world. Geopolitical tension in Middle East is adding to the global panic. The
panic has led to INR moving to a lifetime low and markets slumping by over 3%. Centre
has called for an emergency meeting to take stock of and address the situation. It is expected to
increase import duties on certain non essential imports as also go for a
possible sharp one time increase in diesel prices besides other measures.
Our View : We believe both RBI and Centre are on the right track and the
benefit of the efforts will start reflecting sooner than later. However,
markets will continue to remain volatile based on the global developments. We
don’t see major FII outflow. Financials have to stabilize for the markets to
recover from current level. As such investors need to trade with
caution. Traders should use strict stop losses. In light of the weekend it
would be prudent to keep the open positions light.
On positional front we believe it is
good time to start nibbling into defensives which include – Bajaj Corp, ITC,
Bharti Airtel, Hero Moto, Tech Mahindra, Sun Pharma and Gujarat Pipavav
Technical cum
derivative view :
Market has given away last 2 day gains as Rupee Dollar is changing
sentiment, technical pull back has failed miserably.Now NIFTY is hovering
around major support bands 5480-5550. If we maintain this range it would
reflect clearly that we are still in this range we might hold 5480-5550 and
bounce to 5750-5800 levels.
From, Derivatives point of view, CE writers have mounted 5600,
5700 levels, clearly suggesting 5680-5730 will act as a big threat. Also India
VIX has climbed to a new 52 week high, which will result in a high volatility
and gap up gap down openings.
Overall, we have to be careful and look at technical levels. Any
breach below 5480 will be very bad for markets. If only moves above 5650 we can
start buying aggressively.
Outlook on Rupee
:
INR fell to a record low of Rs.61.98 against the $ today on
concerns that central bank measures to curb capital outflows would prove
insufficient and on worries about a rollback of U.S. monetary stimulus and
strong US Bond yields.
Technically 62.05 is resistance in
spot Rupee whereas 61.20 will be a strong support. If mentioned resistance is broken, then we can witness level of
62.80-63.40.
Today no major data is expected from US hence we can witness bond
yields to be between 2.70-2.79. Also Central Bank is expected to announce more
measures today in terms of import duty hike on luxurious items which can
provide some support to declining INR.
Commodity View :
The global commodities market have depicted sharp rally in
previous session following Egypt violence. Safe-haven buying was featured in
gold and silver amid the sell- off in the U.S. stock market and the escalation
in violence in Egypt. Technical buying was also observed on Thursday as key
technical resistance levels were penetrated on the upside. Crude oil was
another beneficiary of this geopolitical tension as supply worries pushed the
prices upside. Technically all the global commodities are looking
bullish and we advise the investors to remain on long side. Buying on dips is
advised in today’s markets scenario as the gap up opening will require huge
stop losses at higher levels. Hence keep patience and allow the markets
to take small downside correction before entering into long positions. Trade
cautiously with strict stop loss as market is highly volatile.
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