Update for 3rd March 2011

  Markets Rally Hard and What Now ?

• Markets rallied hard on the second day of the budget. It seems that the reason for the rally was not the actual budget proposals but those many things which were not in the budget. The rallies in the Asian and western markets following the then correction of oil prices after the spike also helped.
• On Tuesday, Nifty futures opened higher above the reference level of 5350 at 5375 and started to rally right from the opening. In this process of higher open and a rally from there, a subtle gap ( the gap between Monday's last traded price and Tuesday's trading range ) has been formed in the Nifty futures contracts. These subtle gaps may sometimes indicate further strength or weakness, as the case may be, especially when formed near lows or highs.
• As the general mood of the public including this author was negative on Tuesday, the rally was expected to fizzle out either at 5400 or at the higher reference level of 5450. As this author has written on some earlier occasions, too much of consensus is a dangerous thing in the market, the market turned dangerous to the bears once it broke out above the 5450 level by around 12 noon of Tuseday.
• Thereafter, Nifty futures rallied almost nonstop to close just above the higher reference level of 5550. This close, incidentally, is inside the earlier resistance band between 5550 and 5600 levels.   

    Nifty Futures - Intra-day Chart

     Nifty Futures  - Daily Chart 

Update for 1st March 2011

     Did the Budget Give Any Clear Direction to the Markets ?

• Fortunately or unfortunately, the last post was given a title:  ' Markets Waiting for Direction from the Budget  !'.  Now this author is forced to do a budget analysis since he himself raised the issue in the previous post.
• But a bit of background information first. ( 1 ) Most experts, commentators, industrialists etc seen on the TV channels and who write or express their opinions in the news papers do not normally speak the real truth, as they have to be politically correct. ( 2 ) Most readers might have already heard about the budget proposals and come to their own conclusions. That makes this budget analysis difficult and of not much significance. So let's limit the scope of the analysis to a very narrow area. We will start the analysis by asking some questions. OK, here they are ....!
• Name the stock which gained the maximum after the budget.  Answer : ITC.
• Did ITC get any benefits out of the budget ? Ans. :  No.
• Then why did the ITC stock rally hard after the budget ? Ans. : Yeah, everybody and their uncles were expecting some more taxes on tobacco. But no new taxes were proposed in the budget.
• I see, so the reason for the stock bounces were not the budget proposals but the absence of any higher taxes, right ?
• Yeah, you are perfectly on the target.  
• Now let's see what other expected raises were not there in the budget !  Here they are ! No raise of excises duty and service tax to the pre-bear market rates of 12 %, no raising of the dreaded STT or capital gains tax, no new taxes on the corporates and the rich etc.
• Will the absence of these dreaded increases make a budget a better budget ? Ans : No.
• Is there anything in the budget to reduce the high inflation, which actually is the biggest tax on the poor ? Ans. : No.
• Does it talk about the oil price problem and the heavy subsidies ? No. Apart from a promise to disburse some subsidies directly to the poor, there is nothing in the budget. The budget doesn't even acknowledge the problem of rising oil prices and deficit of the oil marketing companies. Even the expectations of a cut of the customs duty on the crude oil  were belied. 
• So, after all, what is your opinion about the union budget ?  Ans. : It's a budget of no consequences because it implies just the continuation of the present. Just a status quo budget sprinkled with some added masala of make-believe populism. That's all.     

   Nifty Futures - Intra-day Chart