RBI MONETARY MEASURE SHOCKER TO INDIAN MARKETS

RBI has come out with a shocker of raising the Repo and Reverserepo rates by 50 basis points, as against street's consensus expectation of 25 basis points, which has sent jitters in all interest rate sensitive sectors, like banking, automobiles and real estate sectors. Being an ex-banker, I am extremely happy with the RBI's decision to take 'inflation' bull on by its horns. The current inflation is really hurting everyone, mostly common man, the pass on effect of raise in petroleum products is yet to be built in. The Government policy to do away the subsidies gradually on Diesel, Kerosene and LPG (domestic consumers) will further make these products costly, in the months to come, which inturn will push the manufacturing, production and transportation costs, across all sectors of economy. Therefore the inflation not coming under control is well written on the wall for a year or two.

How much raise in interest rates by RBI will help in controlling inflation is a big debatable point, however, RBI has this monetary instrument in its foray to pre-empt the possible shocks, even from externally like the debt market crisis in Europe and possibly in USA??? August 2nd dead line for allowing the borrowing by US Government is already making US markets lot nervous, also has the rub off affect on all markets including our markets.

Well, as forecasted by me July series are likely to end between 5400 and 5800, the result of which will be known at the end of trading today! The strategy has given good return for anyone who has followed. I will come up with the strategy for August series in tomorrow's article, after analyzing the technical pattern of nifty at the end of the day.

Strategy for the Day:

Short term traders can go long on 5400 calls today, at the opening for a bounce and exit quickly, with profits.

Happy Trading.

Nifty levels for July 2011

June Settlement happened in style, where last week of settlement, seen a spectacular 'short squeeze' and Nifty settling exactly around 200 days EMA. FIIs have pumped in more than a billion rupees in the last fortnight. Once the settlement is behind, markets are languishing in a range of hundred points (5600 to 5700), where DIIs are net sellers on rallies though FIIs are marginally net buyers. Retail participation is completely absent, as lot of bearish sentiment is in mind, due to the huge volatility seen during June.

Results season unfolds from next week, and RBI policy in the last week, on set of monsoon as well as estimates and actual data on precipitation, will be watched closely. Inflation being very high, and Interest rates not peaked out as of now, and Government is moving towards decontrolling the other petroleum products, gradually, are all negative for risky equity investment. I am foreseeing that Nifty might not be able to move above 5750 during July, as 200 day SMA would fall around the same level, and the recent relief rally in june, made upward gaps, closest between 5600 to 5606, is held till now. Nifty should ideally consolidate in a narrow range of 5450 to 5750 during the month, and take out the 200 DMA (SMA) may be next month or so., 

One can play a short strangle of selling 5400 put and 5800 call for july series, duly protecting with stop loss, with a hedge of going short on nifty future below 5450 or long above 5750, if it gives a breakout of the range.

Happy Trading!