Short Covering takes Nifty above 4800 mark - Alex Mathews

We saw wild swings in the markets today due to lacking of strong cues. It opened on a negative note tracking its peers in Asia and overnight US markets and moved in and out of the positive region many times in the morning. Later in the second part of the day, we saw short covering which took the markets above the 4800 mark and closed above it. Major concern is Rupee which has fallen to new low below 53.4. Even if falling rupee is a blessing in disguise for exporting companies, it is a serious problem for the central government to meet the fiscal deficit target. Falling rupee will only stretch the chords when a time when the government expects subsidies in the fertilizer sector to move above Rs 90000 crore and expected revenue from disinvestment not achieved.

Falling rupee will further fuel inflation which has started to come down. Importer community will suffer real hard as India is dependent on the Middle East for oil and other major products from Australia and China. According to Minister of State for commerce and industry, the percentage share of Chinese goods of India's imports rose from 6.5% in 2009-10 to 7.7% in 2010-11. The trade deficit with China has also increased from $19.2 billion in 2009-10 to $20.5 billion in 2010-11. As the dependence on imported inputs is rising, corporate may find it difficult to attain their production and profit targets. European markets showed some stability today ahead of the US report on retail sales along with FOMC statement. US futures were also showing some positivity but if European nations are downgraded by any of the rating agencies like Moody's, S&P and Fitch, then Euro may fall heavily against dollar which will cause rupee to fall further against dollar. Demand for dollar from oil importers and weakness in the equity markets will keep rupee down for the time being unless RBI intervenes in a major way.

Nifty today closed above 4800. Tomorrow we are going to see the headline inflation number for the month of November. We may see some more pull back as a continuation of today's uptrend but still the technical indicators have not given a buy indication. For Nifty the major support is there at 4744 and 4700 while the resistance is there at 4840 and 4881 levels. Investors should be cautious at higher levels. On the sectoral front, we saw short covering in metal, oil, auto and power while profit taking was seen in consumer durable and capital goods. PSU oil marketing companies gain as crude fell while oil exploration companies felt the heat. IT stocks continued to gain as rupee plunged to record low.

Asian markets were trading absolutely negative tracking overnight sell off in US markets. Commodities too showed a weak trend on European growth concerns. Fall was on the basis of fear over the rating agencies possible downgrade of European nations after it said that the steps taken at the euro summit on Friday were insufficient. Many of the banks in China including China International Capital Corp and Goldman Sachs group Inc etc expects Chinese premier to cut taxes to trigger growth in 2012. US markets had fallen the other day but the Citigroup economic surprise index improved to 85.7 on December 2nd after labor department reported an unexpected drop in jobless rate.

Source : Equity Bulls

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