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Wednesday, June 4, 2014

Nifty chart: a mid-week update (Jun 04 ‘14)

Nifty_Jun0414

As was widely expected, the RBI Governor left interest rates unchanged, but lowered SLR by 50 bps (from 23% to 22.5%). Will it help the market in any way? Well, yes, and no.

SLR is the amount to be compulsorily invested by banks in government securities. A reduction in SLR should mean the release of several thousand Crores of liquidity into the market – hence, greater availability of credit for would-be borrowers.

However, most banks invest much more than the SLR stipulated amount in government securities any way – perhaps because there are fewer borrowers in a slow economy. So, the reduction in SLR may not filter down to the market for several months.

The upward ‘gap’ of about 47 points, formed on May 13, still remains unfilled. Last Friday’s intra-day drop found support from the rising 20 day EMA and did not test support from the ‘gap’.

After the gyrations on May 16 (election results day), Nifty has settled into a sideways consolidation from which the likely break out should be upwards. Even if the index drops to fill or partly fill the ‘gap’, the up move should resume thereafter.

Daily technical indicators have corrected overbought conditions, and remain in bullish zones. MACD and RSI are still in their overbought zones. ROC has bounced up from the ‘0’ line. Slow stochastic has bounced up from its 50% level. Some more consolidation is possible.

FIIs have invested a net Rs 1000 Crores during the first three trading sessions in June. They are probably waiting for positive policy announcements to increase their buying.

It is a bull market. Remain long.

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