Pull-back rally likely as all hopes hinge on the Budget: By Sanjay R. Bhatia

The markets displayed extreme signs of weakness as the Sensex fell by close to 400 points on Black Friday, 23rd February 2007. Tentativeness and nervousness at higher levels continued to hamper the pre-budget rally, which did not materialize to the extent it should have. The Sensex failed to sustain above the 14450 level although it touched an intra-day high of 14479 and 14466 level on 19th and 20th February. Traders and speculators were active in metals, pharma, telecom, IT, realty and capital goods space. Incidentally, FIIs remained net buyers in the cash and derivative segments during the course of the week. Mutual funds were also net buyers albeit their purchases were lower. Global cues remained mixed with crude oil prices once again spiking up above the $60 level while Bank of Japan increased the interest rate by 25bps. On the other hand, Nikkei continued to rally and touched 18000 for the first time in last 7 years. The Dow Jones Industrial also continued to touch new highs. Amidst all these global cues, the biggest worry for the markets remained inflation even though it declined to 6.63% during the week ended February 10 from 6.73% a week earlier. Further tightening measures should be expected from RBI and the government, as crude prices internationally have risen by $3-$4 from this period. With the Budget around the corner, follow-up buying at higher levels has eluded the markets. Eventhough, institutions have been net buyers the purchases were not significant enough to arrest the fall. Several negative factors like the negative risk:reward ratio, rising inflation and interest rates, corporate acquisitions and mergers, which are likely to affect company bottom-lines in the short-run and subdued FII inflows are some of the major reasons that have contributed to the fall of the markets. The final blow came after the IT raids on 40 entities and banning of 16 entities by SEBI. Now, everything boils down to the Budget. Eventhough, the market expectations are on the lower side, the FM will have to deliver something special and out of the box to change the sentiment of the markets dramatically. The markets would continue to display extreme bouts of volatility and choppiness ahead of the Budget. Technically, the BSE Sensex failed to move above the crucial 14450 level and has borne the brunt. It has even breached the support of 13800 on Friday. The markets are still not out of the woods as we had indicated in the last issue, has come true as the markets have fallen like ninepins. We, therefore, stand vindicated amid all the hue and cry of the Sensex touching 15000 ahead of the Budget. This weakness is likely to continue could lead to more pain. Inflation continues to remain the biggest negative for the markets and not the Budget. In the event that inflation does not subside dramatically, the markets are likely to meet their waterloo. The markets are likely to witness a pull-back rally but the momentum will be witnessed only after Sensex closes above the 14450 level. The Sensex has support at the 13362 and 12995 levels. On the upside, the 14450 Sensex level is the crucial resistance level. In case of the Nifty, the 3877-3850 and 3716 levels are important support levels. The Nifty is likely to face resistance at the 3968 level followed by the 4050 levels. Traders, speculators and investors should stay away. Also Note that: * Jhunjhunwala Vanaspati with a manufacturing unit in Sri Lanka, will benefit by the Centre’s decision to de-canalise and allow duty-free vanaspati imports. Company is also a real estate story with its 300 acres near Varanasi. * The promoter of Radhe Developers has increased his holding by purchasing from the open market. Is it a prelude to an FPO rights offer? * In order to Concentrate on its Core Competence, Premier Explosives Ltd is selling the assets of its mushroom division. This money will also be used to Retire Old debts of the company and bring in more sanity in its operations. For this purpose the Sharehlders' approval has already been sought and the due deligence is expected to be completed by the end of next month. The company is now fully focussed on Defence Projects which are lucrative in terms of margins and timely bill payment. The company will benefit from the Special Products Division which started operating from September, last year and also from the number of overseas joint ventures. More in the following postings.... Best wishes, Suman Mukherjee India. www.eindiabrokers.com http://finance.groups.yahoo.com/group/SumanSpeaks/