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Markets may head higher; short covering on cards
May, 31st 2008

Stocks in India may head higher on Friday as positives outweigh negatives. Foreign investors were net buyers in futures and options on Thursday, Nifty June futures series settled at premium, cues from US and Asian markets are positive and dollar gained against the euro as oil price eased from record levels of May 22.

However, the domestic inflation and GDP data and decision on fuel price issue can't be ignored. India's inflation rate in the week to May 17 will be released around noon today. Analysts expect it at 7.96 per cent, up from a 7.82 per cent rise week earlier. The CSO will also release GDP data for January-March and revised numbers for 2007-08. It had previously estimated GDP growth at 8.7 per cent for the fiscal year ended in March 2008.

Asian equities advanced paring this month's decline, as a drop in oil prices reduced concern that higher energy costs will dampen profits and cut spending. Oil prices cooled down to $126 per barrel from $130. Dollar headed for a second monthly advance against euro and yen as declining oil brightened the outlook for the US economy and traders increased bets that Federal Reserve will raise interest rate.

Back home, the market flipped flopped between negative and positive territories before it ended in the red Thursday as worries over inflation offset gains on short covering in May F&O series and advances in overseas markets. Investors were also cautious ahead of a decision on fuel price hike and relief package to the public sector oil companies, which are bleeding due to the cap on retail prices.

"The indices failed to sustain gains of previous session (Wednesday) and once again tested the lower range of the channel. 16,200 / 4,800 (lower range of the channel) remains an immediate support and one has to observe the movement around these levels. At this juncture, an attempt for upside bounce cannot be ruled out as markets are at the support levels and near oversold zone, on the daily charts. On the upside, 16,500-16,660 / 4,920-4,960 levels may act as resistance areas and closing above these levels only can open further upsides," said a technical analyst with Angel Broking.

Nifty and Nifty Mini futures continued to add open interest as market succumbed to expiry pressure to close at 4835.30. Nifty added 7.99 per cent while Nifty Mini added 19.48 per cent in open interest. Premium of 23.35 points in Nifty June futures indicates there has been cash base selling in Thursday's session.

Nifty rollover to June series was 66 per cent against 71 per cent in last expiry. Though in percentage term it is less, in total value rollover it is quite high. Stocks with decent rollover are Jindal Stainless, IOB, Syndicate Bank, India Cement and Bharat Forge. There is huge addition in open interest in puts of 4600, 4800 and 4900 strikes.
Significant build up was observed in Nifty June calls of strikes 5000-5200. However, there was also huge build up in Nifty June 4800 put. This indicates Nifty will remain range bound in 4800-5200 levels.

Thursday, foreign investors were net buyers of Rs 257 crore in futures and options worth Rs 1113 crore.

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