09 May,2011 08:38 AM IST | | Alex K Mathews
Markets slipped as crude oil prices soared early last week, but by the end of the week there was some stability as crude prices came down. It was an action packed volatile market last week, both for the equity and commodity sectors. We saw wild swings in the commodity market with gold touching the highest level of around $1575 and falling swiftly towards $1470 level towards the end of last week. The case with crude oil was the same, which had moved towards $114 level but came down towards $95 last Friday.
Protest: Activists protest against fuel price hike in 2010
This sharp volatility actually made a temporary basement for markets. High crude oil price, hike in key interest rates, news of probable hike in fuel price, etcetera kept the rate sensitive sector stocks under pressure.u00a0
Moreover, hike in interest rates indicated that banking stocks are to face difficulties in maintaining their profit margins in coming quarters. Crude has an immediate resistance at $101.07 and $105; support at $97.50.
Movements below these levels can cause further sell off towards $89. Gold is looking weak and may get support at $1462 and $1442. Silver has immediate support at $33.90 and $28.75.
Nifty last week fell below its crucial support of 200, 100 and 50 Daily moving averages (DMAs) and has corrected considerably thereafter. Nifty is having support at 5403 and 5373 levels and technically speaking the market is oversold. So we may see technical rebounds in-between, till the decision on fuel price hike is announced. If Nifty moves below 5370 with volumes, then one can expect more selling.
Resistance for Nifty will be at 5631. Investors should be looking at medium to long-term gains, as there is no immediate short-term trend emerging. The markets will set their course when things are laid down and the situation becomes less uncertain. Nifty option traders can create short positions on 5700 Nifty calls and 5500 puts simultaneously.
The widely awaited announcement happened last week during the Reserve Bank of India's (RBI) annual policy review meet. The RBI hiked the repo and reverse repo rates by 50 basis points (bps) to 6.75 per cent and 5.75 per cent respectively. The market expectation was a 25 bps hike and this came as a surprise which created a domino effect in banking, realty, infrastructure and auto sectors. Realty stocks slipped as now less people will go for bank loans to buy apartments.
Even the automobile sector will be affected in the same manner. Apart from that there was some bad news for exporting companies as it was announced that the Duty Entitlement Passbook (DEPB) scheme will not run after June 30. The DEPB scheme is an export incentive scheme, which was extended in 2007-2008 in order to support the exporting companies during the economic crisis. This scheme will impact major exporting companies.
Long term investors can buy Tata Steel and Sesa Goa at declines. Buying interest can emerge in Educom Solutions and Ceat Limited.u00a0 Tyre manufactures stocks can be bought at declines, because natural rubber prices are showing declining trends.
Next big event is the announcement of the proposed fuel price hike. The Empowered Group of Ministers (EGOM) is meeting on May 11 to discuss the fuel price hike. It is widely expected that diesel price, which was raised by Rs 2 on June 26, 2010 and was never hiked thereafter (while petrol price was hiked couple of times) will see Rs 5 hike this time. If this happens then we are going to see double-digit inflation very soon.
Also the RBI might have taken this fuel price hike into consideration while hiking the interest rates by 50 bps. Whatever it may be, it's going to be a decisive moment for the markets. Also the food price index for the week ended April 23 stood at 8.53 per cent against 8.76 per cent in the previous week, which also will add to the deciding factor next week.
The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
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