05 September,2016 09:45 AM IST | | Alex K Mathews
Domestic and foreign investors make it a sweet 16
Union Finance Minister Arun Jaitley speaks at a conference in the city, recently
The markets entered into a bull orbit. It hit a 16- month high, supported by domestic and foreigner investors. Then, heavy short covering above 8750, accentuated the speed of the rally. Nifty gained nearly 2.76 per cent, to close at 8809.65. GDP numbers which came out last week, were below street expectation at 7.1 per cent, earlier in Q4 March it was at 7.9 per cent. India's Manufacturing PMI recovered sharply towards 52.6 in August from July's reading of 51.8. Nifty has strong support at 8750 and 8670. Short term resistances for the Nifty are at 8900 and 9100.
Long positions
The fact that Friday US employment data slowed more than projected in August, which could rule out a near term interest rate hike; supported the world markets. Wall Street also closed positively after this news. India VIX and S&P 500 VIX are at lower levels at 12.94 and 12.19 respectively, indicating a strong upward bias. It is prudent to take long positions on the market at every dip, because of increased participation from retail investors through Mutual Funds and Systematic Investments. As the India VIX is at a new 52 week low, it is prudent to buy Nifty options than selling. Bull Spread strategies and long call options are best suited at this juncture.
Investor trepidation
Crude oil reported its biggest weekly loss since mid-January. After sharp recovery of crude oil, we saw profit booking and fresh short positions on the US Energy Information Administration report on crude inventories. US Crude inventories rose 2.3 million barrels. The sharp decline in crude prices is partly attributed increased scepticism amongst investors that OPEC and Russia, will agree to freeze oil production. Weak crude oil prices are beneficial for oil marketing companies, aviation companies and tyre manufactures.
Mobile stocks
This week metal, PSU Banking, Cement and FMCG stocks will the lead the Nifty. We can expect weakness to persist in IT, Pharma and Telecom sector stocks. Reliance Jio free voice calls offer and cheap data tariff plans, will put pressure on other mobile company stocks. So it is prudent to stay on the sidelines in this sector until it reaches oversold territory.
Lots of macro- economic data like Market Service PMI, consumer confidence, GDP growth rate, inflation rate, and balance of trade current account will be announced from the Eurozone. The US Market composite PMI, US continuing jobless claim, initial jobless claims are expected from the US. Balance of trade and Inflation rate from China and Nikkei Service PMI from India, is also due.
Uptrend expected
Banking Nifty is positive and it could test 20000 and 20105 levels. Strong support can be expected at 18766 and 18700. Many PSU banking stocks are in the oversold region, so one can expect an uptrend in this sector.
Auto sector stocks will be in focus this week because sales numbers of the majority auto manufacturers are very good, and this sector is likely to get more attention because of GST. The Auto sector is the major beneficiary of the GST Bill.
Alex K Mathews is the founder of www.thedailybrunch.com
