Indian stocks set for short term rally

What a change in 24 hours! Inflation was eased; Crude fell by $3 per barrel; American GDP unexpectedly rose; Derivative expiry was over; can any one stop the short term rally in Indian stock markets? Indian stocks which are falling for the last few days will see short term pull back rally due to these fresh positive triggers. Recent correction in the markets is mainly due to inflation concerns (analysts expected 12.8%). We have to wait and see how inflation rate will move in the coming weeks.

BSE Sensex target:

CMP: 14048;
Short term target: 14700-14800.

NSE Nifty target:

CMP: 4214;
Short term target: 4400-4500.

Crude oil: $116 per barrel

Significant news:

1. Currency futures will be started by Finance Minister in Mumbai.
2. India successfully concluded negotiations on a Free Trade Agreement (FTA) for goods with ASEAN.
3. New IPO payment system is effective from September.
4. Prices of rubber sheets made new high.

Sectors: Banking, Real Estate, Automotives, Rubber and Capital Goods.

BSE Sensex may test 15,000 in 1 week:

1. Inflation was eased to 12.4% from 12.63%. This is an unexpected positive trigger especially for sensitive sectors like Banking, Real Estate and Auto. This is the first fall in 28 weeks. Stock markets which are in uncertain zone due to this inflation fear will bounce back strongly as RBI may hesitate to hike repo rate but I will not rule out CRR hike in September.

2. Crude oil price: Crude oil price fell by $3 per barrel but one should not rule out pull back. But it is a relief that price was eased to $116 from $119 in just 2 days.

3. American economy: Dow Jones gained sharply on the news of unexpected growth in American economy due to increase in exports. GDP increased at 3.3% against estimates of 1.9%. Both Dow Jones and Nikkei gained by more than 200 points.

4. Derivative expiry over: Indian stocks fell on Thursday due to August series derivative expiry. So investors will start fresh purchases due to these positive triggers.

5. Lack of major negative triggers over short term is another positive aspect.

6. Government is planning to lift ban on the trading of some commodities like Soya and rubber etc.

Why should you be careful?

1. Crude may bounce back at anytime due to storms and disruption of supplies.

2. Inflation may once again move upwards in the coming weeks. That fear may spoil the market sentiment from Wednesday onwards. RBI make hike CRR in September.

3. Falling rupee: Weakness in currency will keep the foreign investors away from Indian stock markets.

4. Poor Q2 results: Many companies will announce poor results in the next quarter due to rising input costs. So use this short term rally to make quick gains.

5. Global slowdown: Economies of America, Japan and European Union are on the verge of recession. China is also showing signs of slowdown. GDP growth in England is at 0%.

6. Indian GDP below 8%: Inflation and high interest rates are responsible for "Stagflation". So don't expect sustained rallies.

7. High valuations: Valuations of Indian stock markets are still high when compared to other emerging markets.

Negative news:

1. Tata Motors may fail to launch "Nano" by October.

2. Major fire accident in Divis Labs factory.

3. The National Highways Authority of India prevented GMR Group and Madhucon Projects Ltd—from bidding for a highway stretch in Andhra Pradesh.

4. NTPC is facing acute shortage of coal at its 1,000MW Simhadri project in coastal Andhra Pradesh.

Final advice: Use this pull back rally to make smart gains over short term. Inflation sensitive stocks which were beaten down over last few days will see sharp gains especially in real estate and Banking space.

Stock picks for short term:

1. DLF: CMP: 469.5

2. Axis Bank: CMP: 670

3. Unitech: CMP: 152.7

4. Indiabulls Real Estate:

5. Tata Steel:

6. HDIL: CMP: 276.3

7. Yes Bank:

8. IDFC: CMP: 89

9. Panacea Biotech: CMP: 285.7

10. Reliance Capital: CMP: 1282

11. Apollo Sindhuri: Open offer. CMP: 58; Target: 63.

12. Bank of India: CMP: 251.4

13. SBI: CMP: 1309

14. Larsen and Toubro.

Note: Crude is the only trigger which can spoil the party (short term) by crossing $120 per barrel.