Sector specific approach

Nifty finally closed in the positive, while it was in red for most part of the week. It was only in the new derivative series and that the market gained more than 2.50 per cent.

Nifty experienced a roller coaster ride throughout the week. PSU banks were the biggest losers in January series and became quite attractive and retraced some of the lost ground towards week end. It was the private sector banks which rose smartly towards weekend due to Budget proposals.

Bank stocks could remain in the lime light on the eve of RBI policy. Budget proposals could ensure/promote savings and also promote investment by government in infrastructure etc, and it would take some time for the results to kick in.

Service tax with new cess on Swatch Bharat has gone up steeply and could hurt the service sector.

Railway Budget’s proposals to make huge investments over the next five years coupled with general Budget’s proposal to build 1 lakh km of roads could be a big boost for infra structure. NBFCs also would benefit from certain proposals. Savings rate also could go up substantially and funds could become available. Coal allocations could spur mining activity leading to GDP growth. However, up cycle in oil prices could once again lead to higher inflation and RBI could be constrained not to cut the rates. Hence, growth and inflation need to be balanced.

20 DMA, 50 DMA, 100 DMA and 200 DMA are placed at about 8750, 8575, 8400 and 8040 respectively and would act as supports/resistances. Nifty is above all averages. Nifty continues to be above 200 DMA and 50 DMA too is above 200 DMA that the long term bullish trend is intact.

Nifty is quoting at a PE of more than 23.60 which is around 25 per cent above the long term PE multiple.

Nifty EPS fell after Q3 results and the EPS fell from 391 to 374 due to change in weightage of Nifty constituents. Nifty PE, though not in bubble zone, is indicating caution and earnings need to improve substantially over the next Two quarters failing which a reversion to mean with a serious correction cannot be ruled out.

Strong long term support would be around 8050 level and Medium term support is 8400.

For the coming week, Nifty spot is expected to be Bullish above 8935 with resistance at 9040, 9140, 9205 and is expected to Bearish below 8870 with Supports at 8705, 8660 8600, 8495.

Short term trend for Nifty is presently bullish and would continue to remain bullish as long as it holds above 8700 in first half of the week and above 8760 in second half of the week.

Breakout level for the week is 9005, and break down level for the week is 8605.

By: Dr B A Sastry