Profit booking stymies Nifty’s good going
South Korean protesters burn posters of Kim Jong Un following North Korea’s latest nuclear test last week, after which the European markets closed on a low note. Pic/AP/PTI
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Nifty made a new, 52-week high at 8969 but did not sustain at that high, due to profit booking. Last Monday, we saw a good amount of buying in all sectors, except the IT sector. Going forward one can expect marginal decline in Indices due to weak global market conditions and profit booking. On Friday, the US market closed negatively and US futures are also looking weak due to concerns of a possible rate hike. Federal Reserve officials indicated a possible rate hike in the near term. Concerns about North Korea’s missile test also shattered the global markets.
The US elections
Nifty has support at 8801 and 8764; a decisive move below these two levels can put pressure on Indices, and, may test 8721. Resistances for the Nifty are at 8969 and 9028. US CBOE volatility Index closed at its highest level since late June. This is an early indication for a possible technical correction. Usually, US equity markets deliver lower stock returns during September. With the US Presidential elections looming in November, expect further volatility in the days to come. As our markets have a positive correlation with the US markets, volatility in domestic markets too may increase. It is advisable not to write Nifty options, because India VIX can start rising from current levels.
Coal in focus
The Nikki Service Business Activity Index rose 54.7 in August. From 51.9 in July, which is the highest since the past 3.5 years. Nikki India Composite PMI output Index climbed to a 42- month high of 54.6 in August. Globally, the demand for coal is increasing due to higher demand from China and lower output from India. Coal prices internationally, gained to a nearly 17-month high; largest coal producing countries are anticipating a La Nina, which can further cut coal output. In 2010 and 2011, La Nina affected the production due to unpredictable weather conditions. One must watch stocks in this segment very closely.
Some number crunching
Macro data like Continuing Jobless Claims, Initial Jobless Claims, US Retail Numbers, Industrial production and US Inflation numbers are expected. In India, Industrial production, Inflation, Manufacturing Production, WPI Inflation, WPI Manufacturing, WPI Food Inflation, Balance of Trade, Bank Deposit and Loan Growth numbers are expected. From the EURO side Inflation rate, Balance of Trade, Industrial production, Current Account and retail sales number are due.
North Korea concern
European markets closed marginally lower on Friday. This, after the ECB President indicated that it would not consider an increase in asset purchases and North Korea’s claim that they had tested the nuclear bomb and they can easily install that on the warhead of rockets. Bajaj Hind, BGR Energy, R.Power, Tata Steel, Amtek Auto, Dredging Corp, GODFRYPHLP, BEML, NBCC R.Com and Rolta are set to announce quarterly earnings next week.
View of sectors
IT sector is looking extremely weak, minor profit booking can also be expected in the Banking sector, cement and automobile sectors. Price declines in auto stocks can be utilised to invest for the long term. Private sector banking stocks can also be bought if there are sharp cuts in price. Crude declined nearly 2 per cent, despite an unexpected slump in US crude inventories. On Thursday though, crude prices recovered marginally higher on reports that OPEC may freeze production in the near future. Technically, crude is weak and it is likely to test key support levels.
Alex K Mathews is the founder of www.thedailybrunch.com
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