A close outside 4,150-4,450 would probably lead to a 200-300 point swing in the direction of the break
Market values saw only nominal changes in the week prior to the Budget. The Nifty dropped to a low of 4,249 before recovering to close at 4,425 points for a gain of 1.11 per cent. The Sensex was up 1 per cent at 14,913 points. The Defty gained 1.95 per cent as the rupee saw some recovery. FIIs and DIIs remained net buyers in a week that saw low volumes.
Breadth was almost balanced with advances and declines registering around the same numbers. The Junior was up marginally and the BSE 500 was up 0.9 per cent while the Midcaps-50 was down marginally. The Bank Nifty rose 2.26 per cent while the CNXIT dropped 0.9 per cent.
Outlook: The market is locked in a tight trading range and the Budget could trigger a breakout. A close outside 4,150-4,450 would probably lead to a 200-300 point swing in the direction of the break. Either way, expect intra-day volatility to rise over the next fortnight.
Rationale: The Budget is always a big event and this one is eagerly anticipated. The breakout from a trading range normally projects to a move of about the same width as the range. Hence, the potential drop till 3,850, or rise till 4,750. Has the technical correction that started at the peak of 4,693 on June 12 ended? The low in the past three weeks was 4,143 - a correction of 550 points or 11.7 per cent. This would be a short intermediate correction but it could have ended.
Counter-view: Budgets almost always lead to heightened volatility - that has interesting implications since the market has been swinging about 3.4 per cent per session. Budgets often lead to bearishness - this is actually quite likely since there are high expectations about UPA-II. High expectations are always more likely to lead to disappointment.
Bulls and Bears: The focus remains on infrastructure stocks and financials. A "good" Budget could push up values of GVK, GMR, L&T, NTPC, Power Grid, JP Hydro and other infra-related stocks. Financials such as IDFC, IFCI and the entire banking sector is hoping for some concessions.
There is some speculative activity in PSUs. Real estate scrips are also climbing in the hope of sops. The steel sector is an infrastructure-related play receiving selective buying. IT shares are tied to the rupee and could weaken if the FIIs like the Budget overall.
MICRO TECHNICALS
CHAMBAL FERTILISER
Current Price: Rs 71
Target Price: Rs 90
The stock has seen speculative action that has forced the price up from recent lows of about Rs 60. Volumes have also expanded. A close above Rs 75 would project to a potential upside of about Rs 90. Keep a stop at Rs 66 and go long. Increase the position if it closes above Rs 75.
HDIL
Current Price: Rs 239.65
Target Price: Rs 265
Since mid-March when the stock bottomed at about Rs 63, HDIL has managed to stay above a rising trendline at about 45 degrees. The recent correction from a high of Rs 322 to a low of 208 has found support on that trendline. The stock has the potential to rise till the Rs 260-Rs 270 level before it hits strong resistance. Keep a stop at Rs 230 and go long.
ICICI BANK
Current Price: Rs 755
Target Price: Rs 795
A late surge on Friday pulled up the price considerably. However, it was not backed by volumes and may have been caused by short covering. ICICI Bank has been oscillating between Rs 725-Rs 755. If there's a close above Rs 760 on increased volume, the target would be around Rs 800. However, the collapse back till the Rs 720 level is quite likely. Keep a stop at Rs 745 and go long. If Rs 745 is broken, go short with a target of Rs 725 and a stop at Rs 755.
RELIANCE COMMUNICATIONS
Current Price: Rs 292.5
Target Price: Rs 315
The stock has hit a reasonable support and appears to be consolidating on reasonable volume. It could bounce till around the Rs 315-Rs 320 level. However, if it falls below Rs 285, it could also drop till around Rs 265. Keep a stop at Rs 287 and go long. Book profits above Rs 310. Reverse the position and go short with a target of Rs 265 if it drops below Rs 285.
SESA GOA
Current Price: Rs 187
Target Price: Rs 170
The stock is seeing selling pressure, which could continue. It could potentially drop till around the Rs 170-level if the support at Rs 183 is broken. Keep a stop at Rs 190 and go short. Book partial profits at Rs 176 because there is some support there.