Scandals Continue To Put Pressure on Nifty

Nifty remained under immense pressure for the 4th consecutive week as market was rattled by yet another scandal. This time it was LIC Hsg and other banking institutions that were rocked by bribing scandal. CBI probe into realty companies getting loans from these institutions by paying bribes set the cat amongst the pigeons as various realty and financial stocks went into a tailspin. Friday was particularly bad for many stocks as panic gripped the bourses and marginal calls forced brokers to square off positions. So, we had stocks like Core Projects, HCC, Unitech, Orbit and the likes running for cover. HCC was the worst impacted as it also had to deal with Environment ministry that sent a show cause notice for its Lavassa project. JSPL too had to grapple with environment concern and stock hit a new 52 week low before recovering a bit in the end. Overall, it was yet another negative week for the markets as Nifty lost about 2.3%.

Downward spiral continues as Nifty failed to hold on to even the stronger support levels between 5800 and 5850. The leading sector (banking) has been rocked by various scandals and has been witnessing sharp sell off. Realty remains vulnerable given the current scenario and may be witnessing some kind of capitulation. The global scene also is not positive given the Ireland concerns coupled with Chinese tightening. Technically, the 5800-5850 support has not held as Nifty continues to hit new short term lows. Sensex has a bullish gap at around 18850 that has not been filled as yet and provides some faint hope for the bulls. The levels of 18800-900 could provide some support as the indicators have also reached extreme oversold readings. 19400-500 is a resistance area and till the time market sustains above 19500 it would be prudent not to take aggressively long positions. These are tricky times and it would be advisable to wait for some clarity to emerge before resorting to trading long positions.

However, investors with at least 6 months horizon could utilize panics to buy strong stocks. Nifty has support around 5680-5710 and resistance is seen around 5825-5850.

Markets on 24 Nov 10 - LIC Loan Scam Affects Markets

Markets had opened on a steady note and were trading in a tight range but in the late afternoon the LIC Housing corporate loan scam saw the market and especially the PSU banking stocks tank by more than 10-12%. LIC Housing was the worst hit because of its direct involvement saw the stock losing Rs.238 in a single trading session. It fell to Rs.1070 against its previous closing of Rs.1245. The other PSU banking stocks which were badly hit were Bank of India, Central Banl, PNB, Canara Bank and SBI. But we do not think that this negative event has the potential to derail the Indian Bull market story. There could be some more fall because of this event but quality stocks will attract investors and will even attract premium because of strong fundamentals and strong corporate governance.

 

The market breadth turned negative after the reports of loan scam, in contrast with a strong breadth earlier in the day. The BSE 30-share Sensex lost 231.99 points or 1.18%, off close to 375 points from the day's high and up close to 85 points from the day's low. Volatility was high as traders rolled over positions in the derivatives segment. We are of the opinion that markets will have a bearish bias in the next few trading sessions and hence all rallies should be sold into. The medium and long term structure of the India growth story and the bull market is intact but it is the short term which will give problems to the market. However, it will not be a situation where every stock irrespective of its fundamentals will be hammered like 2008 crash. This time select stocks which have strong fundamentals will be bought during panic situations. Moreover, the market too is not heavily overleveraged. So there will be a decline but it might get arrested around 5800 or at the worst 5750 levels. Strong resistance will be witnessed around 6000 levels. Hence for the next one month, market might trade between 5750 and 6050. It will be extremely choppy and volatile to say the least.

The strategy for the short term would be to trade only on an intraday basis with tight stop losses and invest only for long term. Positional trading should be avoided because of volatility and gapped openings.