Market witnessing good buying support from FIIs - Alex Mathews

Once again the winds have started to flow in favor of the bulls which continued its journey and took the markets above its daily target of 5542 but closed below it. The market is witnessing good buying support from the FIIs who were buyers in the equity segment on Friday. The markets opened on a negative note as government hiked the diesel, LPG and kerosene price on Friday after the market hours and recovered sharply and later moved in a sideways manner and closed at highs. One major reason for the continuation of the pullback which we saw on Friday was short covering ahead of the June F&O expiry. The market breadth, indicating the overall health of the market, was positive. On BSE, 1,609 shares advanced while 1,185 shares declined. A total of 119 shares remained unchanged. The government on Friday after the market hours hiked the diesel price by Rs 3/Ltr, kerosene by Rs 2/Ltr and LPG by Rs 50/cylinder. Also the government slashed customs duty on crude by 5%, brought down the import duty on petrol and diesel from 7.5% to 2.5% and reduced the excise duty on diesel by Rs 2.6 to Rs 2 per litre.

Even though the buying in index stocks pulled up the market, we are still left to fight the resulting rise in inflation. Rise in diesel price will lead to the rise in transportation cost. As per reports, the freight rates have already gone up by 8% to 9% on all routes across India. With last week's food inflation which rose to 9.16% it is expected to climb to the double digit zone in the near term adding more pressure on the anti-inflationary steps being taken by the authorities. Monsoon rains which were expected to ease the inflationary pressure didn't delivery upto the expectation as the IMD recently revised downwards the earlier forecast of rains slightly below normal.

Nifty showed extreme strength today and is looking at target of 5585 and 5665 levels on the back of short covering as we are heading towards the June F&O expiry. Nifty is having good support around 5400 levels. Rising inflation, fear of further rate hike, low monsoon rains etc will keep the markets under pressure in the coming month. But looking at investment side, one can start investing in stocks with a medium to long term perspective.

On the sectoral front, we saw tremendous buying in oil marketing companies like BPCL, HPCL, IOC etc after the diesel price hike. Oil refining companies benefitted out of the 5% customs duty cut on crude oil. Auto stocks witnessed renewed buying as the diesel price hike was below the expected Rs 5/Ltr. Apart from these, hotel, banking and tea stocks witnessed buying and some more steam is left in these sector stocks. Stocks like DCB, Canara Bank, Axis Bank, McLeod Russell, Polaris etc can attract buyers.

Asian markets were all trading negative tracking US markets which closed on a negative note on Friday on worries about the Italian banking sector and Greece's debt crisis holding on to its 200 DMA technical level. Commodities have plunged considerably during the weekend. European markets were mostly negative as Greek lawmakers prepared to debate austerity measures needed to secure more aid to prevent a default. Gold was holding on to $1500 level and crude around $90. We may see more profit taking in commodity stocks but entry could be made at lower levels. Later in the day we are expecting the US core PCE price index and personal income data along with personal spending. US index futures are trading in green indicating a positive opening for DOW.

Source : Equity Bulls

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