WEEKLY NEWS LETTER

 The BSE benchmark Sensex was up by 540.70 points or 3.05% for the week to settle at 18289.35 levels

 The NSE flagship Nifty ended at 5564.30 levels, up by 182.70 points or 3.40%. Banking, IT, Auto, Capital Goods, Realty and Power stocks were the major gainers in the index during previous week trade

Key benchmark indices gained for the seventh straight week to scale highest closing level in 28 weeks as latest government data showed that inflation in January eased to a 26-month low. Nifty continues to form higher highs throughout the week and finally closed above 5550 levels. Foreign institutional investors (FIIs) pumped in another 3500 crores during last week taking total for 2012 to  24,100 crores (till February), as per provisional data from the stock exchanges.

Shares in power utilities soared after the government ordered state-run miner Coal India to sign 20-year guaranteed fuel supply contract with power producers for projects that would be ready for generation by March 2015. We view this step as one of the series of measures that will improve the fundamentals of Utilities sector and in turn review power sector capex (indirectly positive for Capital goods sector)

 Wholesale price index (WPI) moderated to 6.55% in January 2012 from 7.47% in December 2011. It's the lowest reading since November 2009. Sequentially, WPI index rose 0.5%, in line with its last three months average sequential rise. Trend of upward revision of provisional figures continued as Nov-2011 inflation revised upwards to 9.48% from 9.11%

 Nymex crude stood at US$ 102.5/ barrel which went up by 3.7% on weekly basis (as on Thursday). Brent crude oil is trading at its highest level since April 2012 ($ 121 per barrel), thus reflecting the mounting tension between the West and Iran over the latters's nuclear program

 Bulls were on the rampage on Dalal Street as both benchmarks conquered key psychological levels of 18000 (Sensex) and 5500 (Nifty) for the first time since August 2011. On the Weekly chart the Nifty has formed a strong bull candle and in the process has retraced the entire decline by 50% (5434) from 6338 to 4531 since November 2010.

 The bullish gap area formed in last Wednesday's trade between 5460 and 5428 becomes an immediate technical support, below which the next critical support is placed at 5300 levels where the index has support from the 21 days EMA

 On the higher side Nifty closing above the 5600 would open up sides towards 5740 levels. The volatility is expected to remain high in the coming week due to the February series F&O expiry on February 24, 2012 .

Derivative Outlook

India VIX cooled off in the first three days but increased in the last two days on account of jittery intraday market moves. This suggests traders are still sceptical of the further upsides and are buying Puts against long portfolios. Hence, there may not be a major crack in the market on an immediate basis

 In the options segment, addition of OI was seen across Put strikes with major additions in 5500 and 5600 Put options, which added more than 4 million shares each. On the Call side, shifting of OI was seen form lower strikes like 5300,5400 and5500 to higher strikes of 5700 and 5800 indicating positive movement for Nifty.

Short covering across sectors was quite evident in the last week as most sectors observed closure of positions. Highest closure was seen in the oil & gas and infrastructure space along with the telecom sector. Relatively lower closure was seen in financial and technology stocks suggesting some room is still left in these sectors for further short covering.