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Pre-Budget breakout unlikely

Devangshu Datta | July 05, 2004

The market experienced a small pre-budget rally. The BSE Sensex rose 3.37 per cent week on week to close at 4870.58 points.

The Nifty closed at 1537.5 points for a gain of 3.29 per cent.

The broad BSE 500 was up 3.86 per cent, which suggested a fair amount of action in the mid-caps as well. Advances somewhat outnumbered declines and the Put-Call ratio was in neutral territory. However volumes didn't improve at all and any rally without rising volumes is automatically suspect.

Outlook: There is support at Sensex 4775/ Nifty 1485 and resistance between Sensex 4900-4950/Nifty1550-1560.

It looks as though the market will continue to oscillate between these boundaries until the Budget. There isn't enough volume to drive a big pre-Budget breakout and the Budget will set the next trend.

Rationale: Volume is always the key indicator for demand. The low volumes of the current moment show that serious investor interest is absent.

Other technical indicators aren't giving strong signals one way or the other. The smart money will stay on the fence until the Finance Bill has been presented.

Typically, the market rises in a pre-budget rally and then falls in post-Budget disappointment. It would be prudent to expect this pattern to hold.

Counter-view: But there hasn't been a typical pre-Budget rally so far and it's quite possible that we won't have the typical post-Budget plunge.

The movements this week have been quite small and intra-day volatility hasn't been high either. Expectations are actually quite low; so the Budget may produce some positive surprises.

Bulls & Bears: It is really sticking one's neck out picking potential winners and losers in these circumstances but let's try.

There are stocks receiving scattered investment across several sectors. Some potential bulls include Aptech, Arvind Mills, Bharat Forge, Colgate, Crompton Greaves, Exide, GSFC, GNFC, Hero Honda, IDBI, Infosys, L&T, M&M, Tata Tea and Titan.

There are no obvious patterns here. Expect large increases in volatility next week and quite possibly, an absolute trend reversal after Thursday.

In the circumstances, it may make sense for long-term players to wait until Thursday before taking any major positions.

MICRO TECHNICALS

Arvind Mills

Current price: 67
Target price: 80

The stock hit a new high mid-week and it's seen a reaction since. Friday ended indecisively. There is solid support at around 64 and this reaction should end at, or above that level.

On the upside, the stock should move above 70 on the next surge. There is a potential target in the range of 80. Go long and keep a stop at 63.

Hero Honda

Current price: 511
Target price: 515, 555

The stock is trading towards the top of a range. It has been testing resistance around 515. If it breaks out past 515 and closes above that, there is a possible target in the region of 555.

This could take a long time; the stock hasn't got high volumes and it will undoubtedly be affected one way or the other by the Budget. The nearest support is around 485. Watch for a close above 515 before you take a position.

Infosys

Current price: 1425
Target price: 1460, 1600

The stock has climbed steadily even as it split. It has hit resistance in a range between 1425-1460. If it crosses the 1460 level, Infy will complete a bullish formation with a possible target around 1600.

However the stock doesn't have great volumes and post-split moves are more difficult to predict with accuracy. Keep a stop around 1380.

IDBI

Current price: 46.5
Target price: 55

The stock has climbed on high volumes from the 30 levels. It will encounter strong selling pressure around 47-48. If it breaks that resistance, it will have a target in the 55 range or higher.

Presumably this move is news-driven and such moves breakdown dramatically if developments are unfavourable. It is probably worth taking a small long position in IDBI in the hopes of quick returns. However keep a stop at 42.

Larsen and Toubro

Current price: 732
Target price: 690

The stock has seen a sharp rise since the relisting after the cement division spinoff. It seems to have just started a reaction and this could continue until the Fibonacci retracement level of 690.

Traders could expect another rally around the 690 level. Wait for a fall and enter below 700. if you hold the stock, contemplate selling and re-entering.

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

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