Market Snapshot
Yesterday, the market edged higher as buying continued following a smooth rollover of the March 2007 derivative contracts. The Sensex was up 92 points at 13,072 while Nifty settled 23 points up to close at 3821. Domestic mutual funds were seen supporting prices today to prop up their year-end net asset values.
The NSE and BSE cash volumes were lower compared to the previous day at INR 75 and INR 35 bn respectively. The F&O volumes were also lower at INR 233 bn.
Sentiment Indicators
The Implied Volatility (IV) across Nifty strikes has increased to 25-26% levels. The WPCR of Nifty Options decreased to 0.62 compared to the previous day while the 5 day average is 0.98.
Outlook
The markets are expected to open with a negative gap on the back of tightening of monetary policy by the RBI as the repo rate was hiked by 25 basis points to 7.75% and CRR rate hike by 50 basis points. We expect the Nifty may even lose 3 % led by RBI's surprise move.
We expect the FMCG, Telecom and Pharma sectors to outperform and Banking, Auto, Real Estate, Construction to under perform the broader market. One can go long on a basket of ITC, Dabur, RCOM, Ranbaxy, Aurobindo, Matrix, SAIL and short counters like ICICI bank, HDFC bank, Maruti, Tata Motors, Parsvnath, HCC, Sobha.
We believe that the gains in the last two days are just a pull back and we expect the market to fall down further. The important resistance level for Nifty is at 3832. The short term support levels are at 3780, followed by 3725.
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