<b>Week Ahead:</b> Market may expect volatility

MACRO TECHNICALS

The financial sector appears to be most vulnerable to the PN fallout.

The market swung through 10 per cent in an amazing Wednesday session and followed up with two sessions of big losses. The Sensex hit an all time high of 19,189 and then plunged to 17,559, for a week-on-week loss of 4.66 per cent.

The Nifty shot up to 5,736 points before dropping to 5,215, for a corresponding loss of 3.92 per cent. The Defty was down 4.69 per cent as the rupee softened in anticipation of further FII selling. The Nifty Junior was hit worse, losing 9 per cent because it contains a large component of FII-sensitive counters.

The FIIs sold heavily Wednesday onwards. Volumes were heavy throughout the week as supply overwhelmed buyers. Breadth was terrible as retail investors panicked and Indian funds stayed net sellers.

The BSE 500 lost 4.66 per cent. The BankNifty lost 6.43 per cent. The silver lining was a small recovery in the CNX-IT, which rose 0.33 per cent on the basis of the rupee downtrend.

Outlook: The selling is very likely to continue though there could be some short-covering due to settlement considerations. The Nifty is bound to test support in the 5,050-5,150 zone again early next week. The intermediate trend appears to be down. Intra-day volatility is likely to be very high.

Rationale: By definition, the market has registered lower lows. It appears to have some support at 5,100 and may bounce again from that region. If so, it will hit resistance at 5,350. Last week's trading had some of the signs of a typical bull market peak. We may now be in a new bear market though this will be difficult to confirm for a while.

Counter-view: The gains of the past six months have been almost entirely driven by liquidity, courtesy FIIs. If that liquidity disappears, the market is likely to undergo at least a deep correction of another 10 per cent.

If on the other hand, the FIIs decide to maintain India exposures, the market could recover quickly. It all depends on FII attitude. Frankly the signals are quite bearish.

Bulls & bears: PN-sensitive counters as well as counters where the FIIs were close to the limit such as ACC, Bharti, Bank of India, IndiaBulls Financial Services and IndiaBulls Real Estate, Reliance Capital, Reliance Energy, Jaiprakash, Jindal Steel, Larsen & Toubro, Mahindra & Mahindra etc, all got smacked harder than the overall market.

The FIIs are over-exposed to the financial sector, which means that selling pressure on banking stocks will continue to be high. Every stock listed in the BankNifty lost ground on Friday!

The IT bellwethers such as Infosys, Wipro and TCS showed defensive strength as did isolated stocks such as ONGC, Triveni Engineering, VSNL, Hero Honda and the newly-listed Powergrid.

MICRO TECHNICALS

ACC
Current price: Rs 991.50
Target price: Rs 950

---

One of the worst affected counters. It has slid from a high of Rs 1,315 to a low of Rs 965. It is likely to see some more selling that pushes it down to around the Rs 950 level. Keep a stop at Rs 1,010 and go short. Cover below Rs 960.

BHARTI AIRTEL
Current price: Rs 976
Target price: Rs 930, Rs 1050 (range-trading)

---

The stock has seen heavy selling but it seems to have found some support on Friday. It is likely to test support at Rs 930 at least once again before it stabilises. Keep a stop at Rs 990 and go short. Cover below Rs 940. If it crosses Rs 1000 on the upside, go long with a likely target of Rs 1,050. Eventually it should settle into range-trading between Rs 950-1050.

REL
Current price: Rs 1,334
Target price: Rs 1,250

---

The stock has seen massive selling, which has pushed it down from a top of Rs 1,959 on Tuesday. It has some support at current levels but the selling pressure is likely to continue. The next reliable support is at about Rs 1,240-1,250. Keep a stop at Rs 1,350 and go short.

TCS
Current price: Rs 1,108.85
Target price: Rs 1,150

---

The stock has held its ground despite seeing a lot of selling pressure. It's likely to go through a positive revaluation if the rupee falls. Keep a stop at Rs 1,090 and go long. There is a likely upside till the Rs 1,150 level. Start booking profits above Rs 1,140.

TRIVENI ENGINEERING
Current price: Rs 114.30
Target price: Rs 130

---

For the past two weeks, Triveni has been generating unusual volumes especially in the derivatives segment where it hit the market-wide limit. It rose from Rs 99 on Tuesday on massive volumes to Rs 114 even as the market fell sharply. The pattern suggests that it could climb till around the Rs 130 mark. Keep a stop at Rs 107 and go long.

(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)