India Morning Report: Massive build up around 7500-7550

Short Call Interest has spiked up ( data for gross OI is the one available) after Friday’s boring daily affairs and Short Put interest is also equally active keeping markets opening the week at an even 7500 again considering the move up. The return of Capex majors L&T and BHEL on long trades however may not be very encouraging for long traders and the breakdown in such trades can trigger wider contagion as markets wait for real good news to back India’s continuing growth equation

Sugar stocks move ahead of the uneven sentiment on Cement and Real estate stocks despite the delayed monsoons which will also impact the agricultural product negligibly this year. Better production and improved domestic and International demand for sugar ensures the markets have a defined focus on the upside as banks wait for the inevitable move up but markets seem to be disappointed by the topping out of midcap sentiment.

The Rupee has also not strengthened on the Dollar for a period of 7-8 trading sessions despite some interest last week. . All in all the week will see the same business as last week as chances of a breakdown remain remote but real and any cut will probably take off 200 points off the Nifty and leave the sensex also well short of the recently regained 25000 mark. On the north side, the more probable direction for the markets, targets remain as high as 7800  as we get closer to a complete budget exercise with improvements in fiscal data and an expected strength in execution for policy and investment programmes. The CAD is has come at a strong $38 Bln for FY 2014 and will be under 3% in FY 2015 as well suggesting the pressure from shorts and currency speculators to have receded without adverse news from Iraq/Syria or Russia/Ukraine. The sideways move will possibly close out strongly after due premium has been built into the 7550 short straddles (7500/7700)

Global data for the month of June may also leave Wall Street subdued before better news from the Oil front results in objective relief for the markets. Gold imports will likely be freed again in FY15 allowing a CAD target of closer to $100 Bln for the fiscal. The government is also expected to withdraw the creep on Excise imposed by the Fiat judgement asking the automaker to pay excise on List price where discounts were extended to consumers.

June Auto sales are likely to continue on the turnaround posted in May 2014 extending the rally to listed car makers even as Maruti and Tata likely resume losing share to Ford, Nissan and other unlisted players who have also strengthened India’s export data.  I would recommend backing longer term investments in IDFC and Relinfra/GMR with continued investments in YES Bank and Kotak Bank as ICICI Bank follows SBI back up in the recovery. Any downtick in demand from rail fare hikes would have to be compensated by infrastructure improvements and renewed commitments but concrete plans for the same have to be shared before celebrating the same ina  weak performer like L&T and other such customers of the rail behemoth.

red draft: Meanwhile PFC seems to have a play in the battle of the Delhi Discoms and power pricingimplications as DERC , the state counterpart of the CERC in charge of Delhi power payments. Sugar payments in the meantime are unlikely to dampen the better sentiment on sugar and power stocks in general as better exports and domestic realisations for sugar and the continuing catch up in Power tarriffs sneaks under the radar with Railways ahead on being reformed by the new government

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