DETAILS OF THIS WEEK TRADING CALLS 10.3.08

Reflecting the continued recession in the United States, most of the global equity markets are weak and hitting multimonth lows. Recording the biggest weekly loss since May 2006, the Sensex last week tanked 9.1 per cent to close below-the-16,000level at 15,976 points and the Nifty slid by 8.7 per cent to end at 4,772 points.

Extremely negative market breadth shows that there is revulsion to risk and a lack of confidence in the market. Weak sentiment and lack of self-confidence among investors are causes for magnification of every small negative news.

Soaring crude oil prices, rising commodity and food prices across the globe and weak economic data from the US continued to be sentiment dampeners. Reports of renewed differences between the Left Front and the ruling coalition UPA on the progress of Indo-US nuclear deal compounded the bearish talk.

Rising inflation may not allow US Fed cut interest rates as liberally as expected but may continue to infuse liquidity in the system at regular intervals. On the home front also, fears of spiralling inflation may see RBI adopt neutral stance. Barring any major negative surprises in the Q4 earnings season, a good monsoon may see markets recover substantially in the second half of the year.

For the week ahead, chartists predict trading band of 15,400-16,600 for the Sensex and 4,444-5,100 for the Nifty. Expect resistance on upside at 16,300 and 4,940 on the indices.

Avoid aggressive shortselling from current levels. After a weak opening markets may recover in the later part of the week on institutional buying due to compelling valuations and short covering ahead of US Fed meet. Do not let emotion or prejudice warp your judgment. Base your trading operations on facts.

F&O Segment M irroring the overall market sentiment, trading volumes continued to be on lower side. Nifty futures were seen trading at deep discount of 45 points to spot indicating the "confidence" of bears and existence of shorts. Violation of 4,650 support level may see Nifty futures tumbling to 4,350. However, good volumes above 4,850 may trigger short covering and see the futures touch 5,300 in near term.

Sentiment indicators like implied volatility, open interest and put/call ratio indicate that hyper volatility will continue for some more time. Banking, realty and power stocks were the worst hit in the last week's mayhem.

From over ownership, observers say, the sectors are likely to be under owned ones very soon if the present wave of selling continues. Start nibbling at good public sector banks, low P/E realty and power counters for good medium term returns.

Pharma and FMCG counters look good defensive bets. Hike of its holding in Orchid by Life Insurance Corporation and steady buying in other pharma counters in the post-budget scenario augurs well for the sector. Stay invested and add on declines in pharma counters.

Despite volatility, metal stocks are witnessing steady buying. Stay invested in Tata Steel, JSW Steel, SAIL, Hindalco and Nat Aluminum. After the recent sharp fall, select infra stocks like HCC, IVRCL Infrastructure Ltd and Punj Lloyd are attracting good buying at lower levels. Further gains likely in near term. Among the beaten down counters, short covering gains are likely in Reliance Communication, Suzlon, Bharti and Reliance Energy Ltd, GE Shipping, United Spirits and Adlabs.

Avoid big positions and stick to stocks showing better relative strength. Do not try to outguess the market. Don't try to pick the top and the bottom of the market.

One sector that is attracting attention of savvy fund managers is steel sector. Analysts say that iron ore shortages and also coking coal shortage due to floods in Australia are leading to demand/supply mismatch and further hikes in global steel prices are not ruled out. However, only integrated steel players like Tata Steel are likely to benefit because they are insulated from raw material shortages. Scout for good value picks in the sector. ¦ One country's gain is other country's loss. Strong rally in international crude oil prices may generate forex reserves of over $2 trillion for the Opec nations. Analysts feel that most of these funds may come to global equity markets in next few months in some form or other. Recent buyout of some equity in Citigroup by a Gulf nation's investment arm is a pointer. Sovereign wealth funds are likely to play key role in the current global crisis. ¦ Select stocks showing good resilience in the current downturn are Sun Pharma and Asian Paints. Post-demerger of research division Sun Pharma has repositioned itself for major organic and inorganic growth. Positive news flow on cards say sources. Buy on declines for target price of Rs 1,600. Paints major Asian Paints is reaping benefits of boom in the infra, housing and auto sectors. A true Indian multinational Asian Paints has profitable overseas production operations. Despite rise in raw material prices the company has performed creditably in the last quarter. Bonus issue is on cards say sources. Buy for excellent medium term gains. ¦ It is interesting to note that more than 200 stocks which have touched lifetime highs in January are now trading at 1-2 year lows. How sharp the correction has been can be seen by this. Many stocks have been sliced of their ‘flab' and are now available at extremely reasonable valuations. Nobody can time the market and despite possibility of some more downside to markets, long-term investors are advised to start building good portfolio from current levels.