Inflation still a worry

Markets were in a holiday mood last week. Both bulls and bears dominated the market in their own manner. Commodity prices controlled market movements with crude and gold prices touching the sky. Crude price moved to a whopping $113 while gold prices hit a new all time high at $1479. Nifty option traders can create strangle on Nifty, by buying 5800 Nifty put option and buying 5900 call option April contract at Rs 60 and Rs 45 respectively.u00a0 A sharp movement above hundred points in either direction can give profits to the strategists.




The Index of Industrial Production (IIP) numbers, which came out last Monday, was at 3.6 per cent against an estimated 5.5 per cent. The major trigger for the market is the Q4 numbers, which has started to trickle in with the Infosys Technologies numbers. It had reported a 2.13 per cent growth in net profit, which was below market expectation. Another major factor was the inflation numbers, which dragged the market down on Friday.
Infosys has two major support levels, one at Rs 2927 and later at Rs 2871.u00a0 Investors with long-term investment horizon can buy this stock at declines. India's inflation for the month of March rose to 8.98 per cent against 8.31 per cent in February. With crude prices rising, increase in inflation is a cause for concern. Now that the state elections are almost over in the South, we may see authorities allowing oil marketing companies to hike the fuel price, which will further lead to inflation spiraling up. Left with fewer options, the Reserve Bank of India (RBI) most probably will step in, by raising the interest rates in order to curtail the expected rise in inflation soon.

Nifty has support at 5724 and 5707 while it has resistance at 6000 and 6100 in the short term. Investors should carefully watch crude price movement, which will decide further movement of the market. We expect good quarterly numbers from automobile manufacturers, cement makers, auto ancillary companies, pharmaceutical companies, jewellery stocks, metals and mining companies.

Stocks like Thangamayil Jewellery Ltd, Shree Ganesh Jewellery House Ltd, Gitanjali Gems, Shrenuj, etcetera can attract more buying in the coming days. These stocks clocked higher volumes last Friday. Gold has immediate resistance at $1481 and $1500. General outlook of ACC, Grasim, Kesoram Industries, Rico Auto, Shivam Auto, Mahindra & Mahindra, etcetera is positive. The markets were keeping a close watch on Chinese inflation numbers, which climbed to 5.4 per cent against 4.9 per cent in the previous month, raising fear among investors that the authorities may resort to further measures to control the inflation. Hence, Asian markets were down on Friday.

Economic data was mostly down with German ZEW Economic sentiment at 7.6 per cent against 14.1 per cent. The European industrial production was at 0.4 per cent against an estimated 0.8 per cent while the US retail sales dipped to 0.4 per cent against 1.1 per cent previously. Also, the US initial jobless claims rose to 412000 from 385000 previously. Silver has moved above 31-year higher price and it is likely to move towards $42.95 and $44.25. Crude, on the other hand, is likely to move towards $113 and it has support at $105.60. Volatility in these commodities is likely to move up in the short term, so investors are advised to place strict stop-loss for their trading positions.

The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

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