RBI Policy Induces Heavy Selling

Market gave up all its early morning gains on account of heavy selling in key heavyweights after the announcement of RBI policy. RBI raised interest rates by only 25 bps but remained committed on tightening as inflation control remained its top priority. Banking stocks rallied initially but failed to sustain higher levels. The Auto counters also encountered selling in the late trades. Nifty lost more than 100 points from its intraday top and closed below 5700. In fact, Nifty gave up all its gains of past 3 sessions. Global cues are positive and that may keep some positive bias as the markets re-open on Thursday. Nifty is likely to see expiry just around 5700. Banking stocks have seen some technical rebound and it seems that there is still some steam left in the rebound. One could utilize any weakness to accumulate the banking counters like SBI, ICICI, Yes Bank, BOI, BOB and Allahabad bank.  Auto stocks remain weak and are a typical sell on rallies stocks. Tata Motors has some support around 1150 and close below 1150 could further weaken its technical set-up. HUL lost more than 5% after its quarterly numbers. Stock closed below 290 and sustained trades below 290 could mean more weakness in this heavyweight. RIL finds some support around 950 and has held this support for past 24-30 months. Positional traders could buy RIL on weakness with perspective of 4-6 weakness. Tata Steel has some resistance around current levels of 655-660. Short covering might sustain it around current levels on Thursday but some correction is expected after January expiry.

Nifty has immediate support around 5650 and then around 5610 while resistance is at 5740-50.

A Positive Week For Nifty

It was a relatively better week for the markets as Nifty managed to gain around 2%. The sentiments remained brittle and the threat of breakdown loomed throughout the week but IT and metal stocks helped indices to stay in the positive territory. BSE IT index was the biggest gainer as it gained over 5% and moved to new all time high. Both Infosys and TCS also hit new highs were the major gainers of the week. Metals also did well with Tata Steel and Sail gaining over 6%. Banks however remained under pressure as most banking counters posted weekly losses. Auto also came under pressure as Tata Motors was the only Auto major to post decent weekly gains. Mid caps saw some value buying in the later part of the week. RBI left all its policy rates unchanged but did infuse some liquidity in the system by lowering SLR. Inflation remains a threat and RBI might be forced to take a hawkish stance in next policy meet.

Nifty oscillated between 5850 and 5950 in the last two sessions and good news is that 5850 has emerged as a decent short term support. Nifty closed just around 5950 on Thursday and follow up in momentum on Monday could mean that Nifty gives a minor breakout. Sustained trades above 5960 could open up targets of 6070-6080 over next week. Couple of successive closes above 6025 would be technically significant as that would suggest that the correction has indeed ended and market might make another attempt at taking out all time high. The behavior of past two weeks also suggests that it would be different sectors that would lead Nifty to 6300- 6350 again. Oil&Gas, IT and Metals are showing clear leadership capabilities with Infosys, TCS, Tata Steel and RIL beginning to see some momentum. Bank index has strong support around 10850-11000(current value 11424) and may stabilize around current levels but could continue to be volatile. Investors with atleast 6-9 months perspective might look at accumulating stronger banking counters like BOB, Indusind Bank, IDBI, Central Bank, ICICI bank, Federal Bank, KTK Bank and Yes Bank. This is for patient investors and don’t expect instant gratification. Trading momentum is seen in Tisco, TCS, Wipro, Mphasis, Polaris, Ispat, Auro pharma, Bharti, SKumars, Chambal, Tata Chem, Petronet, IGL, GSPL, Hexaware and Renuka.

Nifty has support around 5865-70 and then around 5825-35 while fresh move is likely above 5960.