India Stocks Outlook: May fall more next week; overseas mkts eyed

[B. Karthick]

India Stocks Outlook: May fall more next week; overseas mkts eyed
Saturay, Sep 13

Key share indices are likely to decline further next week because
market participants are worried about the health of financial markets
worldwide.
Market could shed 5-10% in coming sessions on account of these
concerns.
Third quarter results of Goldman Sachs on Tuesday and Morgan
Stanley on Wednesday will be acid tests for American and world
markets. If these institutions report below-expected results, global
markets will fall further, and that would spill into our market.
Yesterday, Sensex ended at 14000.81, down 323.48 points or 2.3%
from Thursday.
Nifty closed at 4228.45, down 61.85 points or 1.4%.
India's VIX or volatility index fell 7%.
Both key indices ended near their psychological support levels of
14000 and 4200, respectively.
Sensex has immediate support at 13885, then at 13770.
Support for Nifty at 4150-4100.
However, the market could bounce back next week after four
straight sessions of losses.
If crude oil falls below $100 a barrel and if there is positive
news on Lehman Brothers bail-out (over the weekend), then we may have
upside of 5% and a gap-up opening. Otherwise, markets may continue
with the current trend.
Reliance Industries, which hit a fresh 52-week low of 1,919.70
rupees yesterday on concerns that gross refining margin may decline on
easing crude oil prices, could slide further to 1,800 rupees.
In case of a bounce-back, the stock can face resistance at 2,050
rupees.
We believe the market (Nifty) will remain range-bound between
4200-4500 and one should build short positions as you approach the
higher end, and take long positions at the lower end. But, maintain
strict stop-loss at either ends.
The weakening of the rupee against the greenback is also a concern
weighing on investors' minds.
Imported inflation has been a major factor in the spike in
inflation. Despite a correction in international commodity prices, the
recent sharp depreciation of the rupee poses a serious challenge in
containing inflation.
So far this week, the rupee has depreciated by around 2.3%. The
Indian unit ended at 45.71 rupees per $1 yesterday.
Even IT shares are unlikely to benefit from a weak rupee as there
are concerns over demand slowdown overseas, and also whether they will
be able to meet revenue guidance for FY09.
The earnings impacts for other IT services companies would be
impacted, driven by their exposure/billing in U.S.$, Euro and GBP
(British pound). We note Tech Mahindra could be adversely impacted the
highest, as it derives approximately 65% of revenue from UK alone.

End

B.Karthick
Research Analyst.