The markets traded in a narrow 100-point band last week amid high volatility. The bias too remained indecisive. The open interest remained more or less unchanged -- it rose by 1.3 million on Wednesday when the markets looked up and declined by almost the same amount in the next two days. The Nifty closed at almost the same levels as the previous week even though some mid-caps witnessed very good buying support, indicating the underlying strength in the market.
Globally, sentiment improved owing to strong US, Australian and Chinese economic data. The dollar index strengthened as investors opted for safer assets on fears the Dubai crisis could spread. A stronger dollar helped commodities and gold to correct. However, contrary to the consensus that a stronger dollar leads to a fall in equity markets, the global markets digested the dollar's rise with ease.
In the near term, a strong dollar is good for the capital markets as cost pressures will ease, helping global central banks to maintain an accommodative monetary policy. The simultaneous decline in gold also indicates a fall in demand from risk-averse investors as global risk expectations decline.
Options data indicate that the 5000 levels are likely to provide strong support in case of a down move. 5200 calls attracted a lot of delta players and any close above this level may attract strong covering in calls from these players.
Some of the sectors like power and oil & gas, which have been going through a three-four month consolidation, are likely to show strength and may help the indices sustain higher levels. In power, Jindal Power and Steel is showing very strong patterns in open interest with a rise in cost of carry. This is similar to other Jindal group stocks such as Jindal Saw and JSW Steel. Capital goods stocks like Bharat Heavy Electricals, Siemens and ABB also look set to inch up.
Realty is another sector which will continue to consolidate till month-end and may move up as we approach expiry. DLF and Unitech can be accumulated at lower levels.
Banking and metal stocks are likely to remain under pressure as commodity prices are declining and Dubai worries are keeping financial stocks under pressure. The IT sector is witnessing profit-booking and may remain subdued for some more time. HCL Tech and Wipro may show some strength as the open interest trend has been positive.
FMCG counters ITC and HLL can inch up on fresh build ups on the long side. Among mid-caps, Vijaya Bank, First Source, Noida Toll, HCC are looking good to accumulate. Nifty may trade in a narrow range for the early part of this week but may attempt to move past 5200 towards the close. In the medium term, markets may touch 5400-5500.