Posted By : Kishore B.S
Today there was again a gap up opening in the stock market. Nifty opened around 5420 levels and stayed for most of the around there. It was a very quite trading session with nifty trading in a 20 point range for the whole day.
A few big positive news have come for the market. The first being the CRR cut of 75 basis points and the other being IIP growth of 6.8%. The CRR cut is definitely a positive news. I am a bit doubtful about the IIP number. 6.8% surely looks very positive. But if we see it closely what has happened that some sectors which had already shown a drastic negative growth in December have shown less negative growth. The point I want to focus is that their growth is still negative. So, they have not been able to come to the levels they were in November yet Excluding consumer non-durables, the rest of IIP index contracted by 1.2% as compared to a growth of 8.1% in January 2011. So, the IIP data may look good superficially but in reality it does not point to a healthy growth. This was the reason the markets didn’t take it positively yesterday.
Today the gap up opening was because of the anticipation of reforms in budget. Now, this can be a negative point. The market is anticipating that there will be a lot of reforms but the government does not look strong enough to bring such reforms. So, the budget might disappoint the market.
On the global front US retail sales have come in quite good. So Dow is expected to show some rally today. The Europeans market are also up. Strengthening dollar brings in negative news for other currencies as they depreciate against dollar.
Tomorrow we are having credit policy of RBI. The CRR cut has already come and there is a very little chance that repo rate cut will come tomorrow. So, market is not expecting anything out of this event.
Nifty is expected to trade in a range of 5350-5500 before the budget is out. The investors should be cautious. Its not the time to go long right now. Nifty faces huge resistance around 5450. It will be very difficult to break this resistance. Also, the huge gaps created today and on Friday does not point to a healthy market. So, my take on market is to stay out. If there is a rally one can short Nifty around 5500-5550.
(Contribution: Mr. Shubham Deva, A Stock Market Institute Associate, IIT Kanpur)