India Morning Report: A budget round for Mr Sensex?

In an almost forgotten presentation of facts since the nineties, the new high on the Nifty and Sensex actually makes it a buy at new levels near 7800 which are likely this week as markets celebrate the return of buying and successfully beat the heat to geto into icier peaks above 7500. The monsoons have responded, and even if they do not or IT sector corrects from the continuing appreciation of the Rupee the INR 5 Tln business in portfolio investments (predicated on last month’s INR 2.35 Tln – Lakh Crores volume in P Notes assumed at a high rate of 50%)  is powering the return of Domestic investors at new levels esp those who held out for lower levels in the early legs of the rally since August 2013.

F&O open interest is no longer long on the low end and short at higher levels, markets having tasted cream and sugar to move into strategies sold into even 7600 level puts and moving up to 7800 with 8000 Calls being the likely focus of Call writers hedging their long.  A short covering surge gave markets good momentum on Monday and Tuesday. Buys in 8000 Calls too provide some naked fun on the exchanges but that is likely to return to better risk reward scores for complete strategies esp if sold 7600 puts get close to null score and let market akers move to higher put ranges. The indices are definitely headed to 28000 and 8000 levels, but are unlikelyt o tolerate pfaff esp in policy and Budget announcements, reliant on cash impact and to an extent allowing revenue impact on rollbacks in the name of populism.

As expected, Bank nifty stocks, Power NBFCs and select Pharma and Infra companies are high on conviction buiy lists , our dozen performing the perfect rallying act for the markets in the period. Apparently Federal Bank, SIB and CU Bank have advantages of being perfect private sector substitutes as well for FII limit hit Private Banks but I’d rather you stayed with ICICI Bank, HDFC Bank and more importantly YES Bank

Sun Pharma seems to have covered most of the ground from Foreign buyers’ interest and may flatten out by 695-710 levels much like Kotak Bank in recent years. Budget related news will be key for the Pharma sector and we back Cadila, Glenmark and Stride Arcolab among others.

Auto sales were a great motivator for the markets Maruti again recovering monthly sales of 112,000 units even as unlisted MNCs increased export volumes with Ford moving up with 4677 units exported to nearly 12000 rate. Tata Motors and Hyundai also scored between 35-40k units in June 2014.

The Rupee and Fixed Income markets will be key to India’s fortunes again even as the Budget gifts unfold on India Inc thirsting for better policy execution and investment. Trade volumes for June will be keenly watched in the second week busy with budget announcements.

Markets will definitely spend most time above 7700 levels on the Nifty and nearer if not above 26k levels on the Sensex in this series.

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