F&O settlement, growth data crucial

MARKET WATCH

The market is set for a relief rally in the coming days, with domestic and global cues turning positive. The upcoming derivatives settlement and announcement of the GDP data next Friday will be the major domestic triggers.

Amid hopes, however, there is no respite from volatility as the market has become delicate. But the short-term bias looks positive.

On Thursday, the market followed global cues and rose along with the Asian stocks. But the Left leaders' press conference, pressuring the government not to proceed with the Indo-US civilian nuclear deal, and an SMS, indicating that the Left parties were about to announce the withdrawal of their support to the government, created panic and the market turned negative, even as foreign investors were net buyers on that day after two weeks.

On a weekly basis, the Sensex and the Nifty closed in the green, up by 2 per cent each. During the recent fall, which completed a month of correction, benchmark indices Nifty and Sensex bounced back twice from the 200-day moving average, suggesting strong support levels of around 13,900 for the Sensex and 4,070 for the Nifty. Both the indices have not closed below these levels, though they were breached in intra-day trades.

Domestic investors, including high net worth individuals, continued buying in the market as many good stocks were available at lower prices.

The 200-day moving average covers almost a year's trading and long-term investors hold shares for more than a year to avail of benefits of the long-term capital gains tax. If the indices fall below the levels, it only suggests that long-term investors are also selling.

The upcoming derivatives settlement may support the upside as there are huge short positions built up. Historically, short positions do not get rolled over and are squared off. The first quarter GDP growth data, to be announced next Friday, will also be crucial as it will be the first full quarter after various restrictive measures taken by the government to contain inflation.

The Securities and Exchange Board of India's (Sebi) move to put rights and follow-on offers of large companies on the fast track is also expected to act as a confidence booster for the market.

The capital market regulator is also working on reviving the corporate bond market along with the government, which is considering various recommendations of the R H Patil committee.

The recent restrictions on the use of external commercial borrowings (ECBs) for domestic spending are expected to drive corporates towards the bond market.

Meanwhile, the US markets closed strong on Friday, with durable goods sales surging and the housing sector showing signs of stability. There were speculations that the Federal Reserve would stem losses in credit markets and revive this year's record pace of takeovers.

The yen, which rose above the 112 level against the US dollar last week, also fell back to the 116.4 level on Friday. The yen posted its biggest weekly decline against the euro since 2003 as investors returned to carry trades, where they borrow in the Japanese currency to invest in high-yield assets elsewhere.