DETAILS OF THIS WEEK TRADING CALLS 21.1.08

W eighed down by global factors and liquidity drain caused by the mega IPO of Reliance Power, markets wilted under bear grip. All emerging markets witnessed brutal sell-off triggered by fears about a likely recession in the US, the world's largest economy.

Recording its steepest weekly point loss of 1,814 points the Sensex closed at 19,014 and the Nifty shed 495 points to end at 5,705 during the week ended. Leading the selling brigade were FIIs, which resorted to heavy selling to cover up sub prime losses in the US.

Market breadth was also extremely negative reflecting nervousness among market players. Fairly good results from many of the frontline companies failed to enthuse the markets. Analysts expect buying support to come from domestic institutions and insurance companies which are flush with fund flows. Refunds from Reliance Power IPO in coming days may also ease the liquidity pressure in secondary market.

Watch out for global cues as expectations over liberal Fed cut are building up. Pre Budget rally looks likely after the end of current F&O settlement. Chartists predict broad trading range of 18,400 to 19,900 for the Sensex and 5,555 to 5,940 for the Nifty. The 50-day moving averages at 19,900 and 5,940 on the indices are key trend levels.

Failure to cross them will confirm lower top/lower bottom scenario. Expect resistance on the upside at 19,340 and 19,780 on the Sensex and 5,840 and 5,960 on the Nifty. Watch out for volumes below 18,800 and 5,620 on the indices, panic may see the indices dropping very sharply.

With much of the froth of recent euphoria getting skimmed look out for good trading and investment opportunities in the current correction. Do not try to outguess the market. Do not let emotion or prejudice warp your judgment.

F&O segment T rue to predictions the week ended saw heightened volatility. Trading volumes were low and only the decline on Thursday was accompanied by high volumes. Open interest is still above Rs 1,25,000 crore and is a cause for concern. While implied volatility has shot up sharply to 35 per cent indicating high volatility, put/call ratio decreased implying that the fall would get arrested shortly.

Avoid aggressive short selling as rebound is imminent. Key levels for Nifty futures are 5,850 on upside and 5,620 on downside. Selling was seen across the board in all sectors. Realty, oil & gas, banking, metals and power witnessed savage cuts. FMCG, IT and cement sectors showed some resilience. FMCG and IT are under owned sectors and look good defensive bets.

Stay invested in HLL and ITC. Expectations of good results kept cement counters concrete. Contrarian gains look possible in ACC, Grasim, Ambuja and Ultratech. Despite good delivery of results IT stocks continued to languish on lack of buying interest.

Long term investors can use the opportunity to accumulate quality counters like Infosys, TCS and others for excellent long term returns. Medium term earnings of ferrous companies like Tata Steel, SAIL, JSW Steel and others are likely to be strong as almost all of them are fully integrated from raw material point of view.

Reports indicate that global HR coil prices have shot up from $620 to $800 per tonne in last few weeks. Buy at current levels Tata Steel and JSW Steel for target prices of Rs 950 and Rs 1,450 in next two months.

Pharma stocks are witnessing modest buying interest. Results of Ranbaxy, Nicholas and Orchid were better than expectations. Stock specific buying interest is likely in the sector. Brutal selling in RIL and IDBI may be short lived. Attempt buying in the counters at closer to Rs 2,750 and Rs 140 levels for short term.

True to repeated warnings of that too many stocks in ban period indicate excessive speculation sharp cuts were seen in counters like NFCL, Parsvnath and others. Do not buy more stock than you can safely carry.

Excellent working of Seshasayee Paper is reflected in the results. In the first nine months itself the company has nearly clocked profit of last financial year. Post completion of mill development plan by March performance is likely to be still better. Buy on declines for one year price target of Rs 400. ¦ Suprajit Engineering, manufacturer of mechanical control cables for both automotive applications and non-auto, like material handling equipment, earthmovers and washing machines has embarked on aggressive expansion through both organic growth and acquisitions. The company has commenced operations at second unit at Manesar and acquired Gills Cables in the UK. Buy the emerging engineering stock on declines for excellent returns in medium term. ¦ Buy in the current decline stocks like Zen Technologies, Amara Raja, Jayaswal Neco, Omnitech Info, Tilaknagar Inds, Essar Shipping and Oil Country which have touched 52week highs in the past week for short term gains. Entry of RJ likely to sustain the momentum in Zen counter. Good fund buying seen in Omnitech Info. Mining and integrated manufacturing story seen in Jayaswal Neco. Open offer rumours and unlocking of value in subsidiaries floating in Essar Shipping.



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