It was a benign Union Budget with the Finance Minister doing the best he could to rein in fiscal deficit and give a fillip to investments. But stock market participants unearthed the clause stating that Tax Residency Certificate (TRC) was not sufficient for companies based out of Mauritius to claim tax benefit under the double taxation agreement with the country. This was enough fodder for bears to spread panic on the street pulling the Sensex 316 points lower and the Nifty 93 down in the Budget session.
The Railway Budget disappointed the market on Tuesday with its lower allocation to expansion and modernisation of the rail network. But the carnage in the stock market in that session was not caused by the insipid Rail Budget. It was the hung Parliament in Italy, renewing concerns regarding the sovereign debt of that country that resulted in a stock market sell-off across the globe.
The sharp plunge in mid- and small-cap stocks on rumours of pledged shares of promoters being off-loaded, was the other sidelight of the week gone by. The BSE Mid-cap index lost 3 per cent, while the small-cap index lost over 5 per cent. Derivative expiry on Thursday turned out to be relatively uneventful.
Cash and derivative volumes were moderate through the week though they spiked sharply in the budget session; turnover was twice the average daily volumes in that session. FIIs turned net sellers in the budget session stoking fears of an FII pull-out due to the TRC issue. Open interest on NSE derivative segment has declined to Rs 100,000 crore suggesting that many traders pared their positions ahead of the Union Budget.
But the FII pull-out does not appear to be in India alone. According to EPFR Global, emerging market equity funds saw their 25-week inflow streak come to an end in late February on rising risk aversion caused by fears of currency wars and fresh euro zone troubles.
Investors will react to the impact of petrol price hike on Monday morning. It is also to be seen how the Finance Minister’s attempt to assuage market sentiment on the TRC impacts stock prices.
Daily oscillators continue to signal a sell and are trading deep in the oversold zones. It is, however, the medium-term trend that is currently under threat. All the oscillators in the weekly charts are signalling a sell and are moving into bearish zones. But we need to apply a filter of at least couple of weeks to confirm that the medium-term trend has reversed lower.
Sensex (18,918.5)
The Sensex reversed from the peak of 19,411 recorded on Monday to close the week 398 points lower. Last week’s move implies that the third part of the move from 20,203-peak unfolded last week. As indicated earlier, targets of this wave are 19,255, 18,955 and 18,468.
The Sensex moved slightly below the second target to hit the low at 18,793 last week. A rebound from this level can take the index higher to 19,173 in the near-term. Inability to move beyond this level will imply that the index is headed towards 18,468 or 18,500. But move above 19,180 can take the index up to 19,300 or 19,400. Short-term view will turn positive only on a firm close above 19,400.
The medium-term trend is currently under threat. But the trend over this time-frame has not reversed lower yet. Investors will need to keep an eye on the support at 18,500. Medium-term view will turn negative only on close below this level paving the way for further decline to 18,000 or 17,450.
Nifty (5,719.7)
The Nifty reversed down from Monday’s peak of 5,878 to end the week 131 points lower. Since the index closed below the 5,766 support, the short-term trend has now reversed lower. Next target according to the charts is the November low of 5,549.
As indicated last week, targets of the third wave down from the peak of 6,112 are 5,827, 5,739 or 5,595. Since the index is halting near the second target, a reversal is now possible that takes the index up to 5,787. Inability to clear this level will mean that there is further decline on the cards.
Traders can rest easy with regards to the short-term trend only on a close above 5,860. Move above this level can take the index towards the key medium term hurdle in the zone between 5,940 and 5,970.
The medium-term trend in the Nifty remains up. We stay with the view that close below 5,600 is needed to reverse this view.
Global cues
It was a volatile week in the global stock markets with the Italian crisis causing a sharp spike in risk aversion. But nerves settled as a mid-week Italian bond offer elicited good demand, soothing worries about de-stability in the European Nation. Most major benchmarks ended the week on a flat note. The Dow recovered after the plunge on Monday to close the week 89 points higher. The Dow is stuck in an extremely narrow band between 13,800 and 14,150 over the last five weeks. The dojis and star formations in the weekly candlestick chart denote indecision and the possibility of a break in either direction.
Key short-term support for the index is at 13,500. If the index holds above this level, possibility of rally above the previous peak of 14,198 remains open.
The dollar index that tracks the movement of the dollar against a basket of currencies has galloped higher above 82, reversing the medium-term downtrend in the index. Next hurdle for the index is 84. Breach of this level can cause a sharp appreciation in the greenback.
And that spells trouble for the Indian rupee as well as gold. The rupee has already lost two per cent against the dollar in the last couple of weeks. Next target for the currency is 55.4 and 55.8. Decline below these levels can drag the rupee towards its life-time low at 57.3.
Dollar’s weakness has also pulled gold near its key support between $1,500 and $1,550. Long-term support around $1,450 is the next level that traders need to keep an eye on. Long-term trend in gold will remain positive only as long as the metal trades above this level.