DMK and Libya Have Their Impact on Nifty

Markets opened lower on account of soaring crude price because of unrest in Libya and also because of the political crisis as a result of DMK pulling out of the government. The weakness persisted till afternoon but as rumours of a patch up between DMK and the Congress party surfaced, Nifty futures smartly bounced back from a low of 5400 to a high of 5482 in a span of just 2 hours. The dramatic recovery of 80 odd points was a surprise but the improved sentiment could not spill over to the broader market as the advance decline ratio remained miserable at 375 advances as against 1072 declines.

We are of the view that for the markets crude oil is a bigger worry as it has the potential to derail the economy whereas the political crisis will not have any impact on the stability of the government as it has sufficient outside support for survival. The Libya crisis is expected to be over in the short run and hence will have a limited impact. The issue which worries the market is whether this problem in Gulf extends to Saudi and other countries also. For the time being, Nifty is expected to trade in the range of 5200 and 5600. Crude Oil movement alone can break this range of Nifty on either side. If Libya crisis gets resolved early and the problems do not spread to other parts of Gulf, then an upward breakout is possible. The lower breakdown will happen only if oil moves beyond $125. Till then Nifty might trade in the range of 5200 on the lower side and 5600 on the higher side.

For the immediate short term, Nifty has strong support around 5448, 5400 and then 5375 levels whereas it will face resistance around 5510 and 5545 levels.