All eyes on Chidambarm's Union Budget 2008-09 presentation!

Our markets have turned volatile on the last day of settlement of February series, as major roll over to march series completed by 27th itself, Nifty traded for most part of the day in negative territory, threatening to break the key support at 5DSMA placed 5227, on bear attack, however, as support emerged number of times around this level, huge short covering in the last half an hour, brought Nifty to touch 5302 level, and finally Settlement price 5285.10 was higher than January(5137.45), as predicted earlier.

US markets and Europen markets tanked overnight, and Asian markets are bleeding before our markets open for trading today and have an important event during the trading hours; Unon Budget presentation at 11 a.m. by FM in Parliament, which would last one hour, by which time, inflation data would be released for the week end, which might show further uptick! Crude oil crossing US $ 102 and trading firmly above 100 mark, and analysts predicting it to touch 150 in the days / months to come, is very sad news for regulators fighting inflation. While Railway Budget shown the indication of soft budget, in view of large number of states going to polls this year, and General Elections due any time after October' 2008, owing to the political developments in the country, some sops to cross sections of society and sectors to please voters cannot be ruled out.

Agricultural Loan write off which is being demanded very strongly from all quarters, including left parties, if considered is definitely populist measure, but severely affect the public sector banking system, is the reason why PSU banks shares are nervous a head of the presentation of budget. If one goes by the indications from Economic Survey presented, impetus on agriculture growth is a must to catch double digit growth of economy, in the 11th 5 year Plan, of which, this will be the first Union Budget which has to lay the foundation and road map to achieve 4 % growth in agriculture. The raise in food (agricultural products) prices along with other commodities might throw a big challenge to our country too, if proper steps are not taken now.

Markets will be volatile today with announcement of each and every item, and digestion of the proposals and their affect on various companies, sectors and economy will be known by monday. Today being the last day of February month, some NAV prop up by mutual funds also can be expected to protect the indices.
Singapore Nifty futures are trading at a discount of 200 point to spot nifty will suggest gap down opening of our markets.

Settlement Blues!

Our indices opened firm and gap up, and traded in positive territory for most part of the session yesterday, due to short covering(roll over of short position to next month series); and due to negative opening of European markets, profit booking of three day rally brought the indices to flat, to marginal,negative closing at the end of the session. With 60% roll overs being completed by yesterday, roll over pressure is mostly out the markets, however, volatility will continue, in view of impending Union Budget tomorrow at 11 a.m. by F.M. Economic Survey shall be presented in Parliament today, which will be also watched keenly by FIIs and Institutinal Investors.

January Settlement of Nifty being at 5137.45; our view is Nifty should settle above this point today at the end of the session. Nifty shall oscillate between 5200 and 5400 today, as majority of the investors / institutions are still sceptical about the markets.

Portfolio Pick for Long term: GIPCL(Gujarath Industrial Power Corporation Limited) which closed at 102 is a good long term bet, since it is in public sector, having book value Rs.70; with good profit ratios and is a dividend paying company. Accumulate and hold for long term at current price and on weakness at any time for building in portfolio.

Strategy for the Day: Buy 5200 calls on weakness and 5400 puts on rallies for intra day quick returns in current series.

Pre-Budget Rally on cards!

The way our indices opened strong and went down and came back in vengence, to finally close at the upper end of the trading range, in the process Nifty closed above 5DSMA gives hope for a Pre-budget rally. US markets closed positive overnight, should help the sentiment to some extent, however, volatility cannot be ruled out due to roll over to next series before expiry, as lots of shorts are being built in March series which begin on the budget day, present good trading opportunity.

 

Number of times during the past 10 days markets going below 5100 and bouncing back to close above it, suggest some support seen in the area of 5050 to 5100; once this is gone then the markets are llikely to revisit january lows, as follow up buying is absent after bounces seen like one yesterday.

 

Strategy for the Day: Buy 5100 calls on weakness and 5400 puts of February series on rallies for intra day trading.

Reliance Power compensates with 3:5 Bonus issue to Public Share Holders

Our indices have traded in small compressed range, after opening in negative territory, taking global cues on thursday, and closed negative at the end of the session. Both the indices have closed below January monthly closings due to bear pressure, However, Nifty has held 5110 on closing basis, which is a crucial level to be watched during this week, where lots of information and events are scheduled which will bring in huge volatility on indices, due to F&O expiry, Railway Budget, Economic Survey and finally the Union Budget on 29.02.2008. Inflation has shown raise which is a cause of concern for regulators world over.However, US markets after opening negatively and trading in negative territory for most part of the session of trading, recovered and closed with good gains, due to last hour rally on expectation of rate cut and also that the bond insurers are likely to have a bail out.

 

Reliance Power management announced hefty bonus of 3:5 shares for all public share holders, excluding the promotores(ADAG group), diluting their stake in the company, increasing the public holding to 15%, for improving liquidity too, brings the cost of issue price to 269 fo retail investors is a positive measure which will enthuse investors today at the opening of the markets. March Nifty futures are trading at hefty discount of 50 points indicate shorts rollover and bear grip on the market and Singapore Nifty futrues trading at 70 point premium to friday closing and positive opening of asian markets indicate positive opening for our markets and short covering coupled with follow up buying if emerges, we might get huge rally upto budget.

 

Strategy for March: Buy 5100 Call and Put and leave it till expiry of the series for capturing the wild gyrations expected post budget presentation on 29.02.2008.

Roll overs to next month series begin - Volatility to increase

Our indices have very easily breached number of technical support levels, yesterday, just in one day's trading albeit on low volumes, out performed other asian peers on down side. The lack of follow up buying due to shattered sentiment from majority of the investors, any small selling is bringing the indices few hundred points even on nifty quickly. In this type of shallow market conditions, adventurous short sellers will be caught unaware when the tide turns against them. Roll overs to the next month series have already begun and shall continue. SBI and other leading PSUs started cutting PLR is good news for pushing the consumption, which is worrying the authorities, to sustain 8 to 9% growth of Indian Economy in this year too.

Technically, though markets have closed very weak, Nifty has held January closing 5137.45 on closing basis, where as Sensex closed shade below 17648.71; if held then the short covering from today on, due to roll over will take the indices past previous week closings by tomorrow which will give confidence to number of players might result in pre-budget rally from 25.02.2008. While the settlement of February series is on 28.02.2008, Union Budget for 2008-2009 will be presented at 11 a.m. by FM, which will set tone for the march series. If Nifty closes above 5650 by 29.02.2008 being the last day, it will confirm the january lows will not be re-tested as is being believed by most analysts.

US markets have closed positive after volatile trading, expecting 50 to 75 basis points cut in next Fed meeting in March, Asian markets opened positive and Singapore Nifty futures point to positive gap up opening, if Nifty trades above 5250 and close above it at the end of the session today, we will have continuation of rally tomorrow too.

Strategy for the Day: Buy 5200 Calls for intra day trading and book profit for quick returns.

Reliance Power Board meets on 24.03.2008 to issue Bonus shares!

The news that Reliance Power Board has decided to consider bonus shares in their meeting on 24.03.2008, gave some relief to Reliance Power shares which are trading at huge discount to issue price of Rs.430/450, ever since its listing on 11.02.2008. However, there was selling at Rs.430/- yesterday, from the trapped investors, and people who picked up at lower levels or averaged their cost of acquisition from 11.02.2008.

 

Generally, indian investors are always enthused with an announcement of 'bonus' news, and there will be prop up in the secondary market price, which happened with this company share price too.

 

The mute question is, what is the real value of Reliance Power? While there is no doubt on the capacity of the management ADAG to perform and deliver, what promised, evident from their past track record, the long gestation for generation of cash flows and profits does not warrant a buy at current price at all. Subscription in IPO generally is based on the interest generated in the market and players, which generally gives quick risk free returns to retail investors, who do not have much knowledge of the analysis of the fundamentals, market conditions etc.

 

This is one innovative measure being tried by ADAG as damage control, in view of the huge loss suffered by large investor clientele of all categories, and also as the group have many more ambitious plans to raise funds from markets/public, the sentiment needs to be taken care.

 

An academic question is generally the bonus shares are issued to all eligible share holders whose name appears as on the 'record date' which will be announced later and every share holder is eligible. Whereas the issue shall be a secondary market purchser of shares by 15.02.2008; around Rs.375/- or so and the IPO allottee at Rs.430/450 price are all treated on par, which is again not fair. If one has sold the shares allotted in IPO due to borrowed funds cost pressure at a loss already will be at further loss, as he might have never dreamt that this type of bonus will be on cards!

 

In our view, better exit the shares around 415-430 price, without bothering for the bonus shares, and stay in cash to pick the same at a lower price once it becomes ex-bonus; or switch to another existing performing company with good track record of dividends etc, as such stocks are available in plenty in the market, instead of waiting for 3 to 4 years from now on, for returns from the company to be delivered, as the cash flows and profits shall be visible only after 2011.

Disappointed listing of Reliance Power takes toll on Indian investor sentiment

11.02.2008 was historic day, when the largest IPO from ADAG "Reliance Power" which attracted record breaking subscription and interest was listed on indian bourses. As many feared, it traded below the issue price offered at 5% discount to retail investors, and all retail and HNIs have dumped the stock, to get out of the troubled boat, at the first instance, since many must have subscribed to the IPO with borrowed funds, where they had the double whammy of apart from capital loss, interest burden worsened the situation further.

 

Quite naturally, panic striken players of the bourses, sold everything whatever they can sell, which brought the indices to February lows, and the indices below 200DSMA too at the end of the session. The after effects continued on 12.02.2008 too, and markets turned very volatile, as the tug of war between bears and bulls continued to rest the 200DSMA as base line for gaining control of the markets in 2008. With Reliance Power touching 25% discount to issue price of 450 offered to general public, buying support emerged from long term fresh investors, as well as people who are stuck at higher levels in IPO, and indices staged smart recovery on Thursday, and inspite of petroleum price hike of Rs.2/- on petrol and Re.1/- Diesel, and weak global cues, our markets posted gains on the friday too, ending the 4 week negative closings.

 

In technical parlance, the lows made on January 2008, are held so far, and indices have recovered from sub 200DSMA levels to breach 20DSMA too at the end of week on friday, gives some comfort, but the time wise correction shall continue, giving rise to huge volatility for some more weeks, if not months. The mood of FIIs and DIIs shall decide the intraday, short term trend till 15.03.2008; and our markets shall price in the earnings forecast for 2009 from then onwards based on the advance tax payments by corporates, and also getting fair view on US economy and response from regulators all over the world.

 

Strategy for the Week: Buy blue chip stocks on any weakness in the markets to build long term portfolio.

 

Derivatives Strategy1: Buy a straddle of  5300 strike price of February Series, and hold till expiry.

 

 

Primary Issues loose sheen with Indian Investors

The euphoria created with Reliance Power IPO and the response it received from all categories of clients vanished with its closure, and secondary market melt down, Wochardt Hospitals Ltd issue has not received the minimum subscription, inpsite of reducing the price band, extension of time for subscription, and might have to return the application money to investors who subscribed till date, since minimum 90% subscription is required for listing on exchanges, as per SEBI guidelines.

 

As feared, our indices could not clear 5DSMA due to bear pressure, and due to triggering of stop losses there was a steep fall and finally Nifty closed just around January closing levels Nifty(5137.45) & Sensex(17648.71), at the end of the session. Whether September closings of Nifty(5021.35) & Sensex(17291.10) offer support to the indices on closing basis would confirm the medium term trend for our markets, since today is the last day of the week and indices have posted losses consecutively for the past 3 weeks, ever since correction started in January' 2008.

 

In any panic situation, 200DSMA standing at Nifty4970.43) & Sensex(16896.67) would offer good support for our markets and long term portfolio builders can pick blue chip stocks at such opportunities, for substantial returns by year end, since the long term bullish trend is still intact for our indices, though US markets and Japan are in bearish trend.

 

Investors should stay away from public issues offering with  high unreasonable premiums, since the turmoil in seconday markets will always have their effect on the primary markets too.

"Recession fears daunt US markets again"

Our indices traded in a narrow range yesteray entire day, and closed almost flat at the end of the session inspite of weakness in asian & european markets. The low volumes represent lack of participation by retail and HNIs and the supply at 100DSMA levels confirms the bear grip on the markets.

 

US markets have opened negative and had registered 3rd largest fall in the last 3 months, Singapore nifty idex futures opened 240 points down, indicate a weak to negative opening for our markets too. In case our markets take support at 5DSMA Nifty(5313.94) & Sensex(18292.85) and bounce from there, that is the time to go long on for intra day trading, if one is a professional trader. Risk averse investors should stay away from markets till stability returns to the markets, which can happen after some more weeks.

"Reliance Power Listing on 11th Feb'2008"

Our indices had a gap up opening taking overseas cues and due to short covering Nifty given a break out above 5404 level and closed above 5460 at the end after substantial volatility. The raise from 5137 level of thursday closing to 5545.40 in just two sessions, naturally invited supply from trapped investors, to create liquidity, as most of the analysts predict another round of bearishness to set in once again during the year. Nifty and Sensex have closed above 5DSMA at the end of the session inspite of volatility and face resistance at 100DSMA Nifty(5602.38) & Sensex(18855.80) during this week.

In our view, the sceptism among most of the traders and investors, is reflected in the low volumes, since the price wise correction has taken in shortest time, thus, time wise correction will take some time for return of investor's confidence in secondary markets. Reliance Power will be listed on the exchanges on 11.02.2008; if the demand for these shares is good, as witnessed in the grey market premium before and at the time of subscription, the allottees would reap in good returns, which shall reduce the losses suffered recently, might improve the sentiment to positive, on the expectation of investor friendly budget, as this would be last budget from UPA government.

In view of fears of recession once again daunting US economy, US indices closed in negative territory, wiping out the gains of friday, which shall affect the sentiment, and a gap down opening of Nifty, and volatile trade can be expected and the Nifty might trade within the range of yesterday (5315-5545) for the day,

"Improvement in liquidity with investors to bring in stability in our markets"

Our indices have closed in negative territory for the 3rd week in succession, after reaching all time highs in Jan'2008. The 30% correction from  the top and 10% circuit down on 22.01.2008; due to continuous selling by FIIs, and margin calls from brokers in the carnage, wiped out almost all small traders, and affected the sentiment of retail investors and HNIs too, who have mostly blocked their liquidity in largest IPO..Reliance Power and others. Reliance Power refunds started reaching the investors from 02.02.2008, and the allotment is completed to all eligible investors.

 

US FED announcing another 50 basis points cut on 30.01.2008, brought some calmness to thier markets which are now pricing futher rate cuts during this year, and now concentrating on the performance of individual companies. All is not gone out of shape or bad even in an economy which has slowed and showing signs of recession. All markets with these developments shown some relief rally and were volatile as CBOE voaltility index touching 35 last week. Currently it stands at 24 suggesting that some sideways movement with lessened volatility for the markets during this week.

 

Inflation touching 4% levels as announced on last friday, indicate that RBI may not tinker with the rates for the present and also in view of petroleum product price increase being referred to cabinet this week, which once passed on to consumers/economy will push the inflation futher up in the weeks to come. Huge dollar inflows expected on account of subscription to recent IPOs, will continue to exert pressure on rupee, is another concern for RBI. Thus, Monetary management being the top priority it will be left to individual banks and financial institutions to deal with the interest rates structure owing to their Asset liability Management policies and tools.

 

Nifty & Sensex have closed above 5DSMA which stand at 5235.44 & 17977.10 respectively last week. If these levels are held during any weak ness during the week, there will be stability in the markets in the coming weeks and once, 6000 on Nifty and 20000 on Sensex are cleared with increased volumes, the bullish sentiment shall return to markets, which will challenge previous highs.

 

Strategy: Purchsing Index heavy weights on every dip in small quantity can reap in substantial returns by year end.