Most foreign brokerages expect Sensex to touch 33,000 before
December
DEVANGSHU DATTA
A surprise rate cut enabled thestock market to break out of
atrading range lasting severalweeks. Based purely on domes-tic
signals from the Indian mar-kets, we could expect the bullrun to
strengthen. At only 25basis points, the Reserve Bankoff Indias
out-of-turn rate cutwas minimal but promised tostart a trend.
Between now andthe Budget, sentiment aboutthe Indian economy is
likely tobe positive.
The danger is external.Asian markets are nervousabout China and
Europe iswaiting for a quantitative eas-ing expansion programmefrom
the European CentralBank (ECB). If Chinas grossdomestic product
numbers areworse than expected, or if theECB disappoints, some
bear-ishness will be introduced.
The Nifty jumped past8,450 and kept going up; themain driver has
been financialstocks, including banks andnon-banking financials.
TheBank Nifty has moved up to asuccession of new all-timehighs.
Given the high weightof bank stocks in the Nifty andthe
high-correlation, high-betanature of the Bank Nifty, itsexpected
the Nifty will alsobreak out to new all-time highsof more than
8,625.
In the past three sessions,the attitude of foreign
institu-tional investors was positive,with net buying. While that
ofdomestic institutionalinvestors has been negative(net selling).
Volumes are mod-erate and the breadth is posi-tive, with advances
outnum-bering declines.
The rupee has strength-ened against the dollar. It couldalso
strengthen against theeuro if the ECB announcesquantitative easing.
End-ofthe-month buying by oil-marketing public sector under-takings
will lead to somepressure, with the rupee likelyto ease against the
dollar.
For several weeks, the Niftymeandered within a tradingrange,
moving in a 300-point
zone of 8,150-8,450. On a widertime frame, there has been alot
of trading between 7,900and 8,600 in the past fourmonths.
The current breakoutshould mean a move past 8,627(the all-time
high), confirmingthe big bull market is alive. TheBank Niftys
movement andthe breakout suggest targets inthe region of 8,750
could be hit.Short-term traders mightassume congestion at every
50-point interval.
The Bank Nifty is obviouslyin a strong uptrend. As its innew
territory, target setting isimpossible. Traders who takelong
positions in either BankNifty futures or options shouldbe prepared
for a reaction totrigger short-term pullbacks till
19,100. Stop-losses should beset accordingly.
Expiry effects will be evi-dent soon, as the Republic Daywill
curtail the number of ses-sion till settlement. The Niftycall chain
has open interest(OI) peaking at 8,700c, with aslightly smaller OI
bulge at8,600c. There is ample OI till9,000c. The put OI is very
highat every 100-point strikebetween 8,000p-8,500p. At 1.6,the
put-call ratio is abnormallyhigh for January; it is 1.4 for
athree-month range. This couldsignal a short-term correction.
On Monday, the spot Niftyclosed at 8,550, with the futuresat
8,578. The close to money(CTM) bearspread of long8,500p (62) and
short 8,400p (38)is attractive, costing 24 and pay-ing up to 76. A
wider bearspread,with long 8,400p (38) and short8,300p (24) could
also be hit; thiscosts only 14. The CTM bull-spread of long 8,600c
(73) andshort 8,700c (34) is acceptable,with a cost of 39. A wider
spreadwith long 8,700c (34) and short8,800c (13) costs 21.
A strangle combination oflong 8,700c and long 8,400p;and short
8,800c and short8,300p, costs 35 and breakseven at 8365, 8735.
Despite therelatively short time to settle-ment, there are high
chancesthe wider spread will pay off ineither or both
directions.
DERIVATIVES STRATEGIES
External events might decide ifthe uptrend will continue
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