The week is finally over is how a majority of Indian investors felt this weekend amid huge volatility across markets.
At one point on Friday, for instance, the Bombay Stock Exchange’s benchmark index, the Sensex, fell below the closing level of 2006, wiping out entire gains of year 2007.
However, some bargain buying in the late afternoon pulled up prices.
But, with the US Federal Reserve cutting the discount rate it charges banks in an emergency move to stabilize credit markets and keep the economy on track, US bourses jumped up on fresh buying.
Following these gains, investors and analysts here are hoping that the worst is over. However, it is too early to say that.
Subprime mortgage crisis is a deeply rooted crisis and it would take several months for the US and the global economies to become resilient to its jitters.
On the other hand, another crisis is brewing alongside: the sharp gains in the Japanese yen. If the yen continues to appreciate or hold its current levels, then it could mean trouble for Japanese economy as exports from Japan remained weak despite a weak yen.
And, any slowing of the Japanese economy may actually trigger fresh round of selling across global bourses. This will be especially critical in a situation, when the US, the world’s biggest economy, appears to be slowing.
If the yen triggers an unwinding of the so-called carry trades, then it would also affect the equity markets significantly. While the yen gave up its gains and fell against the US dollar on Friday, lowering concerns over unwinding of carry trade, it remains at best a crisis in waiting.
On top of all these global concerns, Indian bourses are facing another home-grown crisis.
The emerging political crisis with its many twists and turns will also be reflected on the bourses, though perhaps not in a big way when markets open for trading on Monday. But for this uncertainty, the picture was looking relatively rosy for this morning.
Despite the character of most politicians of our country and their selfish moves, investors have become somewhat resilient to such political turmoil. The Congress-led government is still alive so, logically, there isn’t yet a big crisis for markets.
However, my assessment is that the markets may not react so negatively to a worse-case scenario: a mid-term poll. Unless, the possibilities of a “third front”, including perhaps the Left, gain ground. There is little guarantee that such a front will last as a government.
Meanwhile, contradictions over the Left’s economic stand in West Bengal and at the Centre will be a nightmare for foreign investors, a big engine for India’s stock markets, who would need to develop an equally confused model to understand the Left’s economics.
Based purely on technicals, the markets are all set to witness gains on Monday and on its way up, the Sensex may witness its first resistance level at 14,581 points, following which the next resistance is placed at 14,682 points. If the market crosses this level, then the bearish sentiments will give way to bullish undertone and higher levels, such as 15,067 and later 15,133 points will be targeted.
On the downside, 13,982 points offer a good support level. If the market goes below this level, then the next big support will come at 13,778 level. Below this level, there will be crisis.
This week, GMR Infrastructure Ltd, Reliance Capital Ltd and ICICI Bank Ltd look good on charts.
GMR Infrastructure, at its Friday closing of Rs762 a share, has a short-term target of Rs805 with a stop loss of Rs724. Reliance Capital, at its last close of Rs1,004 a share, has bottomed out in the short term and has a target of Rs1,064 with a stop loss of Rs972.
ICICI Bank is a good technical bet at Rs825 and has a potential to move up to Rs878 in the short-term with a stop loss of Rs792.
From our last week’s recommendations, Bajaj Auto Ltd, recommended at Rs2,318 a share met its target of Rs2,400 despite the heavy fall on global bourses.
Maruti Udyog Ltd recommended at Rs810 touched a high of Rs843 but missed the target of Rs846.
However, Century Textiles and Industries Ltd triggered stop loss.
Vipul Verma is a Delhi-based investment adviser. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org