Misconception regarding the new general anti-avoidance rules (GAAR) spread panic in the market last week. Rumours are afloat that the tax authorities will use these rules to bring all participatory note (PN) holders and FIIs investing through tax havens in to the tax net.

Given the length to which the FM went to placate stock market players in the Union Budget speech, it is highly unlikely that he will impose a blanket tax on all PNs that make up 16 per cent of the total FII assets currently. Surely he knows that our market is not deep enough to withstand the sell-off that such an event can trigger?

Again the fact that there are many who use PNs due to reasons other than tax planning and that these instruments do not have any interest in the assets of the company are also arguments against taxing them.

But it is also true that a section of funds that enters our stock market is just black money camouflaged as FII money or PNs.

The Government should have the right to take closer look at the source of such money. The tax authorities might investigate a couple of cases and that could prove to be a deterrent to other wrongdoers. It would be wrong to panic at the thought that the tax men will form an army and run down all such cases.

Over time, genuine FII funds will make up for reduction in these funds. Value of PNs is down 60 per cent from the peak of Rs 4,50,000 crore in October 2007 (to end of February 2012). Total FII assets are up 20 per cent in the same period.

Derivative expiry also contributed to the volatility. But there was no bear squeeze and the stocks just slipped slightly lower in to the expiry.

We have a three-day week coming up and most market players might prefer to take off to the hills and beaches after the torrid time in the market last month. Action is, therefore, likely to be tepid next week.

Friday's recovery has helped salvage the daily oscillators and they are reversing higher. Both the Sensex and the Nifty reversed upward from the 200-day moving average last week. Weekly oscillators are dipping but they continue in the positive zone.

The implication is that the medium-term trend continues to be up for both the indices.

If we consider the monthly candlestick charts, there is a spinning top formation for the month of March.

This means that neither the bulls nor the bears had the upper hand last month and that a break out is possible in either direction.

Sensex (17,404.2)

The Sensex recorded a low of 16,920 before ending 42 points higher. The long-legged doji in the weekly chart is akin to a hammer that suggests a short-term bottom. The index is also bouncing from the key support zone between 17,000 and 17,300 indicated in our last column.

The 200-day moving average at 17,120 and the support around 17,000 will continue to cushion the index in the upcoming sessions.

The Sensex can now move up to 17,540 and 17,925 in the short-term. Inability to move above the first hurdle will make the index reverse lower to 17,000 or even 16,529.

We will retain a positive medium-term view as long as the index trades above 17,000. Such resilience will imply that there is the possibility of the index breaking above 18,500 to 19,000 in the months ahead. It is, however, hard to envisage a move beyond 19,000 just yet.

If the index goes on to close below 17,000, subsequent targets are 16,829 and 16,429.

Long-term view will turn negative only on a strong close below this level.

Nifty (5,295.5)

The Nifty recorded the low of 5,135 before ending on a flat note. Immediate targets for the index are 5,323, 5,380 and 5,440. If the index fails to move beyond 5,323 then traders can initiate fresh short positions with the targets of 5,200, 5,135 and 5,015.

That the index reversed higher from the support zone between 5,150 and 5,250 indicated last week, is a positive. If the index holds above the support at 5,150, it will mean that a rally to 5,800 would be possible in the months ahead. Medium-term supports on decline below 5,150 remain at 5,080 and 4,950.

Global Cues

Global indices slipped slightly lower last week. Investors kept a watch on crude prices as political tensions with Iran continued. Nymex crude futures moved between $102 and $107 last week. As explained earlier, this commodity needs to close below $103 to signal that it can weaken further.

The year 2012 has started well for the US equity market.

The Dow and the S&P have recorded their strongest first quarter since 1998. The Dow moved in a very narrow range between 13,000 and 13,260 last week.

The positive weekly close augurs well for this index. It implies that the short-term trend remains up and the index can move higher to 13,500 in the near term.

We maintain a medium-term target at 14,198 and 14,364 for this index. Close below 12,700 would be the first indication that the trend is reversing downward.

Asian indices such as Jakarta Composite, KLSE Composite Index and Thailand's SET continued their strong uptrend.

 

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