Markets: Amber signs flashing, but not Red Yet

It was a day trader's paradise this week at the bourses as the markets oscillated.

Key events were the dumping of Telecom Stocks, Infy results and Reliance bonus announcement of 1:1. Reliance came out with a bonus issue which surprised the markets but there was no reaction from the markets. An intra- day spike of 6 pc and thats it.

The markets typically hail a bonus issue which is nothing but a sentiment booster for the Retail. Eventually after a month or so after the bonus announcement you get the stock cheaper. An example of this was the Siemens stock last year.

Infosys as usual delivered a good set of number. Their Eps of Rs 100 for this year puts it at a P/E of 22. Not cheap for a stock where there is no growth year on year. The P/E to growth ratio the thumb rule is that it should 1.

Fair P/E for Infy I would put it in the range of 15-17 giving it a valuation of 1500 to 1700.

The most shocking was the dumping of the Telecom sector stocks following a price war announced by Reliance and TRAI declaring a discussion per second billing. Bharti lost almost 25 pc to end around Rs 343. The institutions follow a herd mentality in dumping stocks. I would accumulate Bharti for the simple reason it has 110 million subscribers out of 443 million in India. It has submarine cables and landing stations i key cities.
Bharti is an integrated telecom player and with 3 G, data communications would be another major play. Voice would be just 1 plain vanilla low end offering to entice the customer. The idea is to lock in a subscriber and use his mobile to be his gateway for payments, accessing the net and even his supermarket.
I would not be surprised if free voice calls upto a limit are offered if an user goes in for data solutions from a vendor.

The FII flows seem to be pausing, with the dollar weakening. A weak dollar means for fresh inflows, 1 dollar can buy less amount of stocks. Good news for existing investors as they can exit the Indian stocks with more dollars.

Nifty ended at 4945. It has a cluster of supports. It is at the trend-line joining lows since March 2009. 20 EMA is at 4935. If it breaks this next support comes around 4750.

Nothing is impossible but next week it seems it would be tough to touch 4750. My reasoning is simple. A truncated week with a holiday on Tuesday. Indiabulls Power IPO closing on Thursday means the market will remain shored up at least till Wednesday afternoon or even Thursday.
Look at the put-call spreads, 5000 is a key pivot. Almost same number of puts and calls have been written around this mark. So, its in the interest of the option writers that the markets revolves around 5000. Thats what has been happening last week, and option writers have been eating the premiums.
4800 and 4900 have huge OI in Puts ad would act as strong supports. They will not break easily. 5100 and 5200 calls have good OI build which would be resistance points.
Looks to be a range bound week.