Nifty resistance seen at 5600-5665

Since last Friday, we had seen heavy buying by FIIs on front-line stocks, which in turn caused short-covering, especially at and around of 5400 levels.

Later on Monday, the Nifty opened with a lower bias on global cues, but once again got support at around 5400. Now, 5414 and 5400 will act as major support levels and the major resistance would be at 5600 and 5665 which can attain in the short term. On the option segment, the Nifty call option open interest has fallen in at-the-money and in-the-money call options which lead the put-call ratio to stabilise above 1.20 levels.

In previous weeks, the Nifty put-call ratio has fallen below 1.20 levels and even tested 0.47 levels, now the scenario has changed dramatically and the current ratio has lend support to bulls. But the major outlook still remains weak, because we are still far below the 200 DMA of 5752, and Dow Jones is also set to break the 200 DMA of 11776 in the short term. The rally which we are seeing is a bounce back and it can be short lived as the June expiry is nearing.

The major heavy weight stocks have participated in the recent bounceback, and the trend may continue for some more time even if there are rough patches of high inflation and high interest burden. The situation can be better capitalised by selling the Nifty and its call options in the July series at higher levels.

July short strangle is considered, and it can be created by selling 5700 Nifty call option and selling 5400 put option. Risk averse can exit from the position as the time values of both options have started to decay. Fresh short positions on Nifty futures can also be considered when the Nifty comes very close to 5665 levels with a strict a stoploss above 5690.

Long call options are advisable in TCS and Maruti; both these stocks are expected to move up due to low implied volatility of its options. Grasim, ACC and Bajaj Auto can witness profit-booking in the near term. Investors can create small short positions in these stocks in June futures segmen

Nifty ends above 5525;Power Grid,BPCL,ONGC up

Indian markets ended on a firm note Monday as buying activity picked up in oil&gas stocks following hike in fuel prices. The Empowered Group of Ministers increased diesel prices by Rs 3 per litre, kerosene by Rs 2 per litre and LPG by Rs 50 per cylinder. The decline in international crude oil prices also boosted investor sentiments.

According to dealers, some short covering was seen in capital goods, banks and auto stocks ahead of June series F&O expiry. The fuel hike is likely to push inflation in double-digits which is above the comfort zone.

"We estimate the direct impact on headline inflation of the June 24 increase to be 0.6 percentage point (ppt), and an overall impact of 0.9 ppt for FY12. We therefore raise our WPI inflation forecast to 8.6%, with most of the increase likely in the near term. We project the July and August headline inflation numbers could be in the double digits, higher than expected, but we continue to expect inflation to peak in September," said Tushar Poddar, Chief India Economist, Goldman Sachs .

There's some concern for the rate-sensitive sectors in near-term as the Reserve Bank of India is expected to continue to hike interest rates.

"We maintain our view of 50bps of cumulative tightening by December-11, although the RBI's anti-inflationary stance could result in a further elongation of the rate tightening cycle," said Rohini Malkani, Economist, Citi India.

National Stock Exchange's Nifty closed at 5526.60, up 55.35 points or 1.01 per cent. The broader index touched a high of 5552.65 and low of 5434.25 in trade today.

Bombay Stock Exchange's Sensex was at 18412.41, up 171.73 points or 0.94 per cent. The 30-share index hit a high of 18494.11 and low of 18132.70 intraday.

BSE Capital Goods Index was up 1.75 per cent, BSE Bankex gained 1.61 per cent, BSE Auto Index moved 1.49 per cent higher and BSE Oil&gas Index advanced 1.40 per cent.

Bank of America Merrill Lynch has raised its target price on state-run oil marketing companies Indian Oil, Hindustan Petroleum and Bharat Petroleum. HPCL target price is increased to Rs 500 from Rs 441 per share, Oil India to Rs 1,756 from Rs 1,583, while BPCL's target price was raised to Rs 739 Rs 650.

Citigroup has said that the price hikes were well ahead of its expectations and upgraded state-run oil marketing companies including Indian Oil Corp , Hindustan Petroleum Corporation , Bharat Petroleum Corporation and Oil India to "buy" citing these companies stand out as clear near-term beneficiaries due to the sharply reduced under-recovery burden.

Power Grid Corporation (5.07%), BPCL (4.71%), ONGC (4.01%), Reliance Capital (3.57%) and Maruti (3.16%) were the major Nifty gainers.

Reliance Infrastructure (-1.13%), Grasim (-1.10%), DLF (-0.99%), Ambuja Cements (-0.75%) and ITC (-0.72%) were the top index losers.

Market breadth was positive on the NSE with 1669 gainers against 1212 losers.