Inflation crosses 5% and crude stabilises above 110 $

Sensex breached January Low during last week, due to Yen carry trade unwinding, as Yen breached 100 mark against US$ due to dollar weakness. While Nifty found some support at 4580.15 on 12.03.2008 markets had some relief rally from there on emergence of value buying coupled with partial short covering. However, Both Sensex and Nifty have closed for the second consecutive week in negative territory, below 200DSMA confirms the grip of bears on our markets, which join the global weakness. So naturally, re-coupling story is being advocated by most of the analysts.

Inflation crossed 5% and in actual terms should touch 6% very soon, as the hike in oil price and Steel price are not yet included so far. Slowing down of our economy too in this year, compared to robust growth in the earlier years, is evident from the fall in capital goods growth numbers and manufacturing data released for January. Higher interest rates, input costs, will certainly keep the prices of commodities higher, and consumption shall slow down. Bear Sterns problem of liquidity made US markets tank on friday night, and the bail out package through JP Morgan, confirms that the serious financial system crisis in US still not yet over. Asian markets opened in negative territory, taking weak US cues, and singapore Nifty futures point to 140 points gap down opening for our markets too.

US Fed announces 25 basis points discount cut, a head of FOMC meet on 18.03.2008, to injuct liquidity, increasing the tenure of this option from 30 days to 90 days, is to be kept in mind, which might bring some stability to US markets to night. Technically, Nifty January Low of 4448.50 was exactly 30% retracement level from its peak made on 08.01.2008; which should offer good buying opportunity as domestic funds which are sellers for some time, might lend support at these levels, Corresponding 30% level of Sensex works out to be 14844.74. These levels may be tested, but should be held during this month, in our opinion. The trading is restricted to 3 days only from today for this week on account of 2 holidays Milad Un Nabi and Good Friday, and the Sun outage period of extended trading shall come to an end by tomorrow. From 19.03.2008, normal trading resumes, by which time advance tax payment numbers, and further FOMC action would be known.

Strategy for the week: One can go long on April futures which are available at 18 points discount to the spot on weak opening of Nifty, and hedge the same with going long on 4500 put option of current month series, which require an investment of Rs.50000/- (for meeting margin and premium)

Nift range for the Week: 4450 to 4950