Rupee volatility ahead: How to trade IT stocks?

Also, find out how is Power Grid placed on technical parameters on its FPO day

The Reserve Bank of India (RBI) on Monday released the current account deficit (CAD) figures for the July-September quarter a month ahead of the usual December-end schedule.

The data showed a huge drop in the CAD numbers, which would provide further relief to the rupee, as markets prepare to face tapering of the US Federal Reserve’s asset purchase plan. CAD for the quarter ended September narrowed sharply to $ 5.2 billion, or 1.2 per cent of gross domestic product (GDP), from $21 billion (5 per cent of GDP) in the year-ago period, mainly due to curbs on imports of non-essential items like gold and a pick-up in exports.

Trade deficit contracted to $33.3 billion in the quarter from $47.8 billion a year ago.

The rupee rose to a near two-week high on Monday as manufacturing activity returned to growth in November.

The HSBC PMI for manufacturing stood at 51.3 points in November, up from 49.6 points in October this year. A reading below 50 indicates contraction, while one above it shows expansion.

INR however trimmed gains after RBI said the state-run oil companies were sourcing all of their dollar needs in markets
but added it would consider re-opening a special swap window on "rare days" of strong greenback demand. This is likely to put some pressure on the currency as earlier this huge dollar demand was being met through outside the forex market .

The above developments are likely to make rupee volatile in the short-term, say experts. It is currently trading at 62.34-a-dollar as compared to its close of 62.31 a day earlier.

In such a case how should you trade USD-INR sensitive IT stocks tells  Ranak Merchant, Technical Analyst - Strategies of Sushil Financial Services. She also picks for us three IT stocks for short-term gains.

SmartInvestor : Benchmarks recovered slightly after a weak start today. Global cues remain negative. What are the charts indicating for benchmarks. What are the key levels to watch?

Ranak Merchant : The previous week saw benchmark indices recover smartly from a double bottom near 5980 and test levels of near 6200. Although a higher top and bottom formation on weekly charts has been establish a psychological resistance appears to be near 6200 levels. The level of 6212 holds crucial importance (nifty spot, closing basis) for the next upmove to unfold. Being an event heavy  month, we can expect two-way volatility to continue. Support lies at 6092.

SmartInvestor : Small-caps outperformed benchmarks yesterday significantly. How are broader markets poised to perform?

Ranak Merchant : As the benchmark indices are likely to remain range bound on account of events lined up and midcaps and smallcap stocks have much of catching up to be done, the same are likely to outperform the benchmark indices on a medium to slightly longer term timeframe. However one needs to be stock specific in selection. Mid Cap banks, Capital Goods , Infra names could be accumulated gradually. Metals to give a trading bounce as mentioned earlier.

SmartInvestor : What are your top trading ideas from mid-caps and small caps for today?

Ranak Merchant : One would not look at mid caps and small caps from an intra day perspective. On positional basis one can look at Dena Bank for targets of 60, Vip Inds for targets of 67, Andhra Bank for targets of 67 and Apollo Tyre for 88 above 82 to name a few.

SmartInvestor : The rupee is expected to take heart from July-September quarter CAD figures released. How are IT stocks looking on charts? Your top picks from there and levels to watch?

Click here for more...