Furrows on the brow

Concerns and worries mark week of woe

Furrows on the brow

Concerns and worries mark week of woe

Keeping the trend weak, the markets slipped around four per cent amid growing concerns of rising interest rates and global economic worries including that of Europe and the United States (US). Corporate results were not very encouraging, especially in the sectors that depend on borrowed money and deal in financial activities.

Decent
During last week, the markets made a new low every day and did not witness any covering activities on the expiry day as well. However the rollover figure was decent and was at 69 per cent compared to 67 per cent in the previous contract.u00a0

The rains were slightly above normal but not enough to quench the thirst in many agri-growing states of the country. We saw food inflation for the week ended July 16, at 7.33 per cent down from 7.58 per cent in the previous week.

But this cannot be taken as a real change in trend. A rise in demand is expected in the coming months as festival season is coming up and the recent hike in minimum support price of farm products will also keep the price at a higher notch.

Support
There were comments from the deputy governor of the Reserve Bank of India (RBI) that inflation will start to ease by the end of this year, but did not hint at stopping rate hikes, indicating that things would remain hawkish going forward. The Finance Minister too extended his full support to the RBI in its fight against inflationary pressure.

Nifty
In the coming days, one can expect a range bound market, rather than one sided movements. It also does not have sufficient support below 5500.u00a0 On the north, Nifty will face resistance at 5570 (50 DMA) and 5581 (100 DMA).
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On the south, Nifty has support at 5434 and 5343. Investors can buy Nifty August long straddles at 5500 strike price. The chances of an increase in implied volatility is likely to be high and can give decent returns in the short term. Aggressive traders can buy 5500 Nifty August call options.u00a0

Debt
Nifty will follow the weak to subdued cues from the global markets till August 2, till the talks are over in the U S. If the debt limit of $14.294 trillion is raised, then the markets around the world would cheer it and we may see Nifty moving once again towards 5700 levels. On the other hand, if the debt ceiling is not raised, then the market would tank.

Cautious
The dollar-rupee equation is not in favour of exporters, after testing a high of 44.0925. It is in corrective mode and is likely to test 44.4902 and 44.5183. Further appreciation against the dollar is likely in the medium term. Appreciation of the rupee against the dollar can affect the profitability of the IT companies in the medium term.
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Investors should take a cautious approach while creating large trading positions because of the present currency volatility. On the domestic front, SEBI raised the minimum size of an open offer from 20 to 26 per cent and scrapped the non-compete fee provisions. It also raised the open offer trigger from 15 to 25 per cent.

Limit
It was Europe that was ailing with debt and we saw countries like Greece, Italy, Portugal and Ireland feeling the heat and still under pressure to meet their debt obligations. Now, we have the mighty US, which must raise its debt limit by August 2 from $14.294 trillion to avoid a debt default.

The US debt limit has been raised 74 times since 1962 and we cannot conclusively say that what would happen if the US debt limit is not raised.

One thing is sure, that they would default on their payments to creditors in the short term but eventually they will come up with something new. As political interest is also involved in resisting an increase in the debt limit, we may see the Republicans agreeing to a small increase in the limit so that this issue pops up again.u00a0

Bets
Gold is trading on the sidelines despite its sharp move, hopefully its consolidation above $1600 may lift the price towards 1638 to 1650 levels in the medium term. In the individual stocks segment, counters like Bharti Tele and Idea are good bets for the short-term. Short positions are advisable in Alastom Projects and Tisco. Pharma Stocks like Pfizer and Sun Pharma are good in the long term perspective.