NIFTY RETREATS FROM HIGHER LEVELS; VINDICATES OUR CAUTION

NIFTY RETREATS FROM HIGHER LEVELS; VINDICATES OUR CAUTION

WORLD MARKETS                             

US indices, helped by gains in consumer discretionary and financials, as well as positive developments in China, climbed 1.4%-2.3% yesterday. Some part of the gains was also on account of "catch up rally" as US markets were shut on Monday.

Shanghai Composite surged more than 3% yesterday. Yuan's midpoint fix hit its strongest level of 2016 against the U.S. dollar on Monday, and weakened only slightly on Tuesday. Nikkei ended modestly higher after climbing nearly 7% on Monday.

Brent oil fell 3.6% to $32.18 a barrel and Nymex crude slipped 40 cents or 1.4% to $29.04 a barrel as hopes for a supply cut were dashed. Four of the world's largest producers did agree to freeze output at January levels, if other major exporters joined the deal.

The U.S. Empire Manufacturing Index for February came in at negative 16.64, worse than expected but better than January's print of minus 19.37.

Dollar index gained more than a percent. Gold fell $31 or 2.5% to $1208 an ounce for its worst daily drop since mid-December.

European markets, except a 0.6% higher FTSE, lost 0.1%-0.8% on the back of decline in commodity prices and mixed earnings. Closely-watched German ZEW economic expectations index came in at 1.0 for February, falling from 10.2 in January. ZEW's current conditions index for February came in at 52.3, compared to 59.7 in January. European car sales rose 6.3$ in January.

AT HOME

After gaining about half a percent in the opening trade, benchmark indices plunged more than 2% from the top of the day to end lower by about a percent and half. Sensex slipped 362 point to settle at 23192 while Nifty finished at 7048, down 115 points. BSE mid-cap and small-cap indices tumbled 2.4% and 2.2% respectively. All the BSE sectoral indices ended in red with Capital Goods and Realty indices leading the tally, down 3% each.

FIIs net sold stocks worth Rs 964 cr but net bought index futures and stock futures worth Rs 1030 cr and 452 cr respectively. DIIs were net buyers to the tune of Rs 591 cr.

Rupee depreciated 31 paise to end at 29-month low of 68.37/$.

OUTLOOK

Today morning, Asian markets are trading mixed with modest changes and SGX Nifty is suggesting about 30 points higher opening for our market.

Readers would recall that after Nifty staged a sharp rebound from our indicated 6880 downside target, we had been saying that this is just a pullback rally and traders would do well to book profit in long positions as 7240 resistance approaches.

Yesterday, the benchmark, after touching a high of 7205 in the initial trade, plunged all the way to 7048, vindicating our caution.

7240 continues to be important near term hurdle, until the crossover of which, the bias would continue to be negative.

In yesterday's report we had also mentioned that 7056-7035, the gap created by the gap up opening on Monday, is the immediate support area, a breach of which can take benchmark back to 6870 bottom made last week. That continues to be view.

Traders are advised to wait for the breach of 7240-7035 range for taking a fresh view.