Choppy times ahead with a downward bias

MARKET OUTLOOK

India's headline inflation is likely to rise to double digits in the week ended June 7, as it factors in the fuel price hike decision taken on June 4.

"Crude is the single largest worry for the market right now. We expect crude to remain around $130-135 a barrel and that will continue to add to inflationary pressures," said an institutional dealer.

However, domestic institutions are showing interest in buying select blue chip stocks at current valuations. Select infrastructure stocks such as Bharat Heavy Electricals and defensive counters including information technology and pharmaceutical companies are likely to attract buying from domestic funds.

The Sensex ended at 15,189.62 on Friday, down 60.58 points or 0.4 per cent, and the Nifty closed at 4517.10, down 22.25 points, or 0.5 per cent, from the previous day. The volatility index rose 5 per cent during the period.

Some dealers are cautiously optimistic on the market as the Nifty has managed to close above the 4500-mark for three consecutive sessions.

Neppolian Pillai, head-institutional equity, Modern Shares and Stock Brokers, however believes the Nifty is likely to fall further to 4280, though the support of 4400 seems to hold in the near-term. "The Nifty will have a lot of difficulty crossing 4750," he said.

Bank shares are likely to see some more downside, despite trading at attractive valuations, on fears the Reserve Bank of India will again raise the rates or cash reserve ratio in its July policy meet to contain inflation. However, dealers recommend buying some public sector banks.

Real estate shares are best avoided as they are likely to fall 10-15 per cent more even from their current lows.

The real estate sector is a high beta space, and most realty shares hit new 52-week lows this week in line with the fall in the broader market.

"DLF could actually come down around Rs 100 from current levels. So it is not an advisable time to enter the realty sector yet," said Pillai.

Auto shares are also seen down next week as volumes are likely to take a hit after the government increased the excise duty by Rs 15,000 a unit and Rs 20,000 a unit for over 1,500cc and 2,000cc utility vehicles respectively, analysts said. The duty is also applicable to large cars.

Reliance Communications may see some downside after Reliance Industries informed the MTN Group board on Thursday that it has a right of first refusal in case of any majority stake sale in Reliance Communications.

On the positive side, GAIL (India) could see an upside as it will consider a bonus issue on June 23.

JSW Steel, Uttam Galva, and Essar Steel are likely to benefit after the government granted an exemption to flat steel products from the 15 per cent export duty, Pawan Burde, analyst, Angel Broking, said.

The shares of steel companies are not likely to be significantly impacted by the hike in export duty on long products from 10 per cent to 15 per cent, analysts said.