Despite weak global cues and high intra-day volatility, equities and key indices ended higher on selective bargain buying. This establishes the resilience of the Indian stock market to the ups and downs of the global economies.
This week, the market is likely to move up further and most likely test its all-time high on persistent buying. Though there is no dearth of negative cues and high crude prices remain a significant threat to economic fundamentals and to the corporate world, the government’s decision not to increase the prices of petroleum product until crude prices stabilize, gave markets some comfort. And the subprime saga continues to unfold each day.
Adding to such worries are concerns over more interest rates hikes in China following a recent batch of strong data, including one showing capital spending in October rising at the fastest pace in over a year. Monetary tightening in China could trigger further weakness in the Asian markets, especially in Hong Kong. However, Japanese stocks are showing signs of being oversold and are likely to bounce back.
Now, those of you who make up your mind seeing Asian markets in the morning may find the signals very confusing as Hong Kong may continue to show weakness, while Japan may gain on bargain buying. However, investors should note that Indian markets will neither be affected by Hong Kong nor Japan and will move by their own strength. But, investors need to watch out for US data, which will add momentum to the trend. This week, fresh US housing data as well as a report on US consumer sentiment will be closely watched to gauge the confidence of US consumers. The data related to October housing starts and building permits will be released on Tuesday, followed by federal open market committee (FOMC) minutes from October 30-31 meeting on Wednesday. Markets will try to read between the lines from the minutes of FOMC meeting for any clues about the possible US Fed action next, as hopes rise on further cut in interest rates in US to stem the contagion of subprime mortgage.
Other than key data, earnings from Hewlett-Packard will also be watched closely on Monday. It is worth mentioning here that the rebound on US bourses on Friday, was led by technology stocks and Hewlett-Packard was among the top gainers in technology stocks.
Back home, the markets are likely to move up on Monday as sentiments are buoyed by the gains on US bourses on Friday and also by the latest investment figures of foreign funds, which show foreign institutional investors (FII) remained net buyers of $195.4 million or Rs788.4 crore (equities segment) on Thursday. The trend is likely to continue on Tuesday as well unless there is some big negative news. However, US housing data will dictate what will happen on the bourses later.
On its way up, the Sensex is likely to face first resistance at 19,843 points, this is a moderate resistance level and close above this level would trigger the next leg of the rally, which might take the Sensex to its all-time high of 20,238 points, which is also the next resistance level. However, if the Sensex crosses this resistance level, then it may find strong support at 20,534 points. On its way down, the Sensex may find support at 19,632 points, followed by next support at 19,494 and a rock bottom support at 19,198 points.
This week technically, stocks such as Unitech Ltd, Union Bank Ltd and Reliance Natural Resources Ltd look good on charts. Unitech, at its last close of Rs389.75 a share has the potential to move up to Rs418, with a stop loss of Rs363. Union Bank, at its last close of Rs185.35 can touch the target of Rs203, with a stop loss of Rs172. Reliance Natural, which is purely a technical call with a short-term objective, has the potential to move up to Rs186, with a stop loss of Rs151. The last traded price of the stock was Rs167.45.
From our last week’s recommendations, ABB Ltd, which was recommended at Rs1,572 touched a high of Rs1,679, which was well above its target of Rs1,622. Reliance Energy Ltd, recommended at Rs1,838, met its target of Rs1,894 very comfortably, hitting a high of Rs1,966, while Bharat Earth Movers Ltd, recommended at Rs1,574, hit a high of Rs1,849, gaining 17.47% over the recommended price.
Vipul Verma is a New Delhi-based investment adviser. You can send your questions and comments by writing to email@example.com