Dial O for optimism

Nifty hit a high of 52, but minor profit booking last Thursday and Friday erased some of its earlier gains. Nifty closed at 8638 on Friday, and it is likely to test 8715 in the near term. Optimism about passing the GST bill and expectation of a moderate rate cut by RBI on August 9, supported the markets. Individual stocks like PNB and Dr Reddy witnessed profit booking after the Q1 earnings, but Asian Paints made a new 52-week high after a stellar performance. Companies which are manufacturing paints, aviation stocks, oil marketing companies and plastic furniture manufacturing companies are likely to move up in the days to come, because of weak crude oil price. Crude oil lost its key support and it may test $37 per barrel, due to higher inventory.

Finance Minister Arun Jaitley speaks in the Rajya Sabha in New Delhi during the ongoing monsoon session. Pic/PTI

Sugar stocks and tea stocks are in demand. Many companies which had huge debts in their portfolio, can reduce that because of the higher demand led price increase. Domestic Brokerages stocks were in good demand due to higher participation from retail investors and strong equity markets, driven by high liquidity.

Sights on Nifty
If Rajya Sabha members unanimously support the GST bill, then Nifty can jump towards the 9000 mark. If the GST Bill is postponed to the next Parliament Session, it can cause some profit booking too. So it is advisable to keep long positions with appropriate Nifty put options, to reduce volatility. Foreign investors are net buyers since the past couple of months, and they are accumulating Nifty put options, to reduce portfolio volatility.

Banking Nifty is slightly overbought, but still has upward momentum and it can test 18699. If Nifty breaches the 8715 mark, then Banking Nifty will move towards 18800 level, despite the poor Q1 results of ICICI Bank which came out with its numbers after trading hours. Banking Nifty has support at 18782 and 18632.

Gold is still moving up, with good buying interest. Gold manufacturing company stocks were also in good demand in international markets, after easy monetary policy and events like the Brexit and the US Presidential election. Gold has immediate resistance at $1364 per troy ounce.

Last week, the Bank of Japan kept the interest rate unchanged. Bank of Japan also decided to buy 6 trillion yen worth ETF annually, up from 3.3 trillion Yen a year ago, which will stimulate the Japanese economy. Chinese markets are looking weak, after the China Bank regulator drafted new rules on Wealth Management Products.

Wealth Management Products can only be active in the money market or bond market, not in domestic listed shares. Many fund managers are reducing their exposure in domestic stocks. If the China Bank implements the new regulation, then we can expect short term, knee jerk reactions in the emerging markets.

A lot of mid cap and small cap companies are coming out with their Q1 earnings which include Nilkamal Plastics, Rushil Decor, Delta Corp, Indigo, VRL Logistics, HEG, Voltas, Wonderla, Torrent Power, Berger Paint, Cadila Health, Disman, HCL-TECH, Pricol, Arvind, Gati, BEL and Sical Logistics. The investor fraternity is eagerly awaiting the HCL-TECH Q1 earnings. If the numbers turn out to be good, then we can expect minor pull back on IT Index, because it is already entered in the oversold region. Major support for BSE IT Index is at 10730 and it will face resistance at 10910.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear market Strategies, Option Trading: Bull Market Strategies, Financial Services and System, Security Analysis and Portfolio Management published by Tata McGraw Hill. He is the founder of www.thedailybrunch.com.