Week Ahead: Muted response to Budget

MACRO TECHNICALS

The key Budget-cum-settlement week ended with marginal gains after a small post-Budget sell off. The Nifty closed at 5,223.5 for a week-on-week return of 2.2 per cent while the Sensex was up 1.32 per cent at 17,578 points. The Defty rose 2.18 per cent.

Breadth was average with declines slightly outnumbering advances. Volumes were relatively low, especially given that it was such a crucial week. The BSE 500 was up 1.58 per cent while the Junior was up 0.80 per cent. Foreign institutional investors (FIIs) and mutual funds were net buyers this week until the Budget session.

Outlook: The market remains stuck in a trading range and is likely to continue trading between Nifty 5,000-5,500 indefinitely and it is currently trading between 5,100-5,300. This week could start with a losing session that pulls prices back to support at around the 5,050-75 level. On the upside, there is a strong resistance above 5,300 and if that is penetrated, there is resistance at 5,500.

Rationale: Even the combined impact of the Budget and the settlement failed to shift the market out of its trading zone. However the initial reaction to the Budget was negative and this may intensify somewhat on Monday.

Counter-view: In the context of volatility over the past two months, a trading range of 5,100-5,300 is unsustainably narrow. A breakout in either direction is quite likely. However, it will require a sharp volume expansion to break either strong support at 5,000 or resistance at 5,500. As of now, there is no apparent trigger. But low volume action is always somewhat bearish.

Bulls & Bears: While the bulk of the action was negative, there were several sectors which responded positively to the Budget. Pharma stocks responded positively and most of the majors such as Aurobindo Pharma, Cipla, Dr Reddy's, Matrix and Ranbaxy shot up on Friday.

Auto stocks such as Bajaj Auto, Hero Honda, Mahindra, and Maruti also went up. PSU banks seem to have been re-rated with Bank of India, Canara Bank, PNB and SBI all doing well. Private sector refiners such as Essar Oil and Reliance Petroleum also saw renewed investments.

On the other hand, brokerages such as Indiabulls Financial and India Infoline saw big sell offs. Apart from sector trends, isolated winners such as Aban Offshore, HDFC, Hindustan Unilever, IFCI, Sail and Sesa Goa were scattered across sectors.

MICRO TECHNICALS

India Infoline
Current Price: 1,112
Target Price: 1,000

The stock dropped over 7 per cent on Friday though volumes on the sell-off were comparatively low. It is precariously poised at an important support. If it opens weak on Monday, the downside target would be around 1,000. Keep a stop at 1,135 and go short.

Mahindra & Mahindra
Current Price: 691.75
Target Price: 740

In the last four sessions, the stock has climbed from a low of 555. It has a potential target of 740 and given excellent volume expansion, this is likely to be achieved. Keep a stop at 685 and go long. Book some profits above 720.

Ranbaxy
Current Price: 445.75
Target Price: 495

The stock completed a bullish formation when it closed above 430 on Wednesday with extremely good volumes. It appears to have seen a reversal in the long-term trend from bearish to bullish by also crossing over the 200 DMA in mid-February. The target could be about 495-500. Keep a stop at 435 and go long.

Reliance Petro
Current Price: 175.8
Target Price: NA

The stock saw positive post-Budget action with volume expansion and price rise. It has significant resistance at current levels however. If it closes above 180, it would develop a target of about 200-205. Keep a stop at 167 and go long.