Benchmark indices closed last week with gains, the fifth consecutive weekly gain. The Nifty surpassed the 5,800 level, whereas the Sensex crossed 19,000 which is a very significant event for the market.
The October series of the Nifty started with futures open interest (OI) of 21.8 million shares, which was marginally higher than the September series OI of 20.4 million shares. Analysis of the rollover statistics clearly reveal the aggressive rollover by foreign institutional investors (FIIs) in index futures.
To keep its date with global developments, the government has embarked on a reform drive (like foreign direct investment in certain sectors) and announced various measures to lower the fiscal deficit. Besides these, it stirred a much-needed drive to restructure the debt of state electricity boards to revive the ailing sector.
On the back of this, the bullish enthusiasm continued to keep the positive momentum intact after registering sharp gains in September, highlighting that the market is heading higher. Current valuations for the Nifty lies at about 13 times one-year forward P/E. Historically, under ideal circumstances, the Nifty usually trades in the range of 10-20 times forward P/E, depending on bearish and bullish cycles. Adjusting the same to present levels, Indian markets appear attractive. A rush for value investing may again push the indices to reach new highs. The volatility index (VIX) is continuously correcting and moved to about 16+ from around 19+ levels as in the last series, which indicates that the participation is stepping up and also augurs well for a definite direction of indices.
For the Nifty, major supports lie at 5,705, 5,690, 5,632 and 5,575, whereas major resistance will be at 5,815, 5,890 and 5,950 in the near-term. Though Nifty witnessed some-range bound session in the concluded week with one brutal shock on Friday, nonetheless, it perfectly maintained its position above various short- and long-term daily moving averages (5, 10, 25, 50, 100 and 200-day averages) placed at between 5,208 and 5,738. Exponential moving averages for 34 and three days exist at 5,520.24 and 5,749.18. These levels will play significant roles in the coming sessions.
Of late, fund flow in our market has started from low beta (defensive) stocks to high beta ones. This natural churning is getting further support by reform initiatives in the domains of oil & gas, infra, realty, power and capital goods. This paradigm shift also indicates increasing risk appetite amidst market participants.
On the options front, the 6,000 call option has seen the highest build-up in OI followed by the 5,800 strike price, while in the put options, 5,500-5,700 strike prices have seen significant amount of build-up in Friday’s trading session. Option players have shifted the strike upwards in puts, indicating some strong bullish moves unfolding.
Based on the encouraging buying, the Nifty is continuously gluing with upper Bollinger band. As, according to latest estimates, Nifty 50 companies are expected to post a 28 per cent jump in net profit in the September 2012 quarter results, this rally might get a good amount of food to replicate its growth DNA.
According to statistics, FII inflows are expected to remain strong as leading FIIs start looking at India, as a good long-term investment destination. Investors should buy into value stocks for good returns with a long-term purview, while monitoring the Euro zone and other global developments.
The author is head (equity research) Canara Bank Securities Ltd.
The views expressed are purely of the author and not of the organisation he is representing