Markets look towards RBI for direction

Enthused by better-than-expected results, renewed buying from FIIs, good spread of monsoon and positive global cues, Indian equity markets moved back to fresh lifetime highs during the week ended.

Sensex closed 840 points higher at 37,337 and Nifty ended 268 points higher at 11,278.

After long hibernation, the broader markets outperformed the benchmark indices, with the midcap index gaining 4.7 per cent and the smallcap index gaining 4.6 per cent during the week. Quality small and mid caps can be picked based on multiple time-tested parameters.

FIIs turned net buyers in the cash segment but were seen hedging their positions by remaining net sellers in derivatives segment. DIIs turned net sellers during the week and were seen booking profits at higher levels.

With stability in rupee in the recent weeks and the moderation of oil prices, players expect the MPC to keep repo rate, the rate at which RBI lends money to commercial banks, unchanged at 6.25 per cent.

Near term trend will be dictated by decision of the Market Policy Committee on August 1, Q1 earnings, progress of monsoon, domestic macro economic data, FII and DII activity, the movement of rupee, crude oil price movement; and global cues like outcome of US Fed meet, Bank of Japan and ECB decisions on interest rate and Chinese data.

For the week ahead, chartists predict trading range of 36,750-37,750 and 11,100-11,425 for the benchmark indices.

Support for the benchmark indices evident at 37,000 & 36,750 and 11,180 & 11,100.

Stock Scan
RITES is a multi-disciplinary consultancy body in fields of transport, infra and related technologies. It has an in–house team of expert engineers and specialists. It provides a comprehensive array of services under a single roof and believes n transfer of technology to client organizations. The company is internationally recognized as a leading consultant with operational experience of over 55 countries. It is the only export arm of Indian Railways for providing rolling stock overseas. Heightened interest was seen in the stock after its recent listing. Buy on declines for target price of '500 in medium term.

Orient Refractories is in the business of manufacturing and marketing special refractory products, systems and services to the steel industry with global presence. ORL is market leader for special refractories in India and has many global partners for its international quality products. It caters to over 500 customers in India and across the world. ORL parent company, RHI AG reached an agreement with controlling shareholding of  M/s. Magnesita, GP & Rohne. The combined company will be able to offer ORL customers even more comprehensive range of products and services. Buy on declines for target price of '375.

IP Rings  is a front line automotive components manufacturer, specialising in the production of piston rings in high carbon high alloy steels and nodular iron with a variety of surface coatings that find application in present day high performance low emission engines. The company has a successful history of working seamlessly with both global and domestic partners. Buy for medium term target of '300.

Futures & Options
The derivative segment witnessed brisk and volatile trading during settlement week.

Rollover data gives evidence of fresh longs; Nifty & Bank Nifty rollover stood at 74 per cent and 78 per cent as against 64 per cent and 72 per cent.

Marketwide rollover stood at 90 per cent vs 84 per cent, which was higher in terms of percentage and total open interest vis-a-vis last month as well as the average of the last three months.

In the options segment, 11,500-strike call has the highest open interest and 11,000-strike put has the highest open interest.

Nifty is on its way towards its potential near-term target of 11,400-11,450 levels. It is interesting to observe that from frontline counters TCS, Infosys and Kotak Bank have gained 43.9 per cent, 33.3 per cent and 29.9 per cent while Tata Motors, Vedanta and Bharti Airtel have fallen 37.9 per cent, 33.3 per cent and 31.2 per cent respectively till date.

The next leg of rally is likely to be led by the banking space. Barring tech sector, nearly all sectoral indices notched impressive gains. Stocks from Metals, FMCG and Realty sectors logged impressive gains.

Bank Nifty closed above the 27,400-levels confirming a fresh breakout. Punters expect Bank Nifty to further rally towards 28,500-levels in near-term.

Results of Canara Bank were better than expectations and industry players are expecting many more surprises from PSBs in next few months. Use declines to accumulate SBI, BOB, Canara Bank and PNB.  Also looking good are Ajanta Pharma, Escorts, ITC, India Cements, Muthoot Finance, Motherson Sumi, Raymond, Titan and V Guard.

(C. Kutumba Rao is an avid follower of stock markets. This newspaper is not liable for decisions made on the basis of this column. Views expressed in the article are personal views of the writer.)