Despite a lot of resilience to international trends, Indian bourses ultimately succumbed to global factors led by uncertainties over the US economy, resulting in a fall in the last two days of trading, but ending the week with moderate gains.
Last week was quite eventful, due to the meeting of the US Federal Reserve on interest rates. The Fed’s 25 basis point cut was on expected lines, and led to some profit selling globally. But US inflation data, reflected by the producer price index and consumer price index surging sharply, rocked the markets as it indicated that the Fed would take a very cautious stand on interest rates in future. This led to pessimism on emerging markets, which are heavily dependent on liquidity to sustain their expensive valuations.
But the India story looked a bit different last week as data related to industrial output in October, which at 11.8% was well above forecasts, reinforced the view that the Indian economy is going strong. This was primarily the reason for good performance by Indian bourses last week.
There are not too many expectations this week as there are no positive triggers. The impact of a sharply higher consumer price index in the US will be felt on Monday, when Asia resumes trading. But I do not see any large-scale impact on Indian bourses, as they are looking strong due to buying in mid-cap and small-cap stocks. Moreover, the breadth of the market is quite positive and advancing volumes are beating declining volumes by a good margin. Also, since some window-dressing is expected towards the end of the year, a big fall from here is not likely; rather, every decline should be considered as an opportunity to buy good quality stocks.
There are two major events coming up: third quarter results, which will start pouring in from the first week of January, and fresh allocation of foreign funds. But both are likely to remain buoyant.
However, since it is a fact that US data largely dictates what would happen next on global bourses, it will be wise to keep an eye on crucial numbers coming out from there, such as housing starts and building permits. The data related to new housing starts is expected on Tuesday and this is expected to show some more weakness. However, any positive surprises on this count may actually trigger buying. Similarly, building permits, which indicate future activity and will also be watched very carefully, are expected to show a fall.
Other than this, the US commerce department reports on personal income and spending for November on Friday, and both income and spending are likely to rise. This should have a positive impact on markets.
Monday will bring the latest reading on the quarterly current account deficit, while on Thursday, the final revision to third-quarter gross domestic product is due. These data may not have any significant impact unless they are way off estimates.
Back home, the markets are likely to consolidate with some downward bias initially. But buying is likely to emerge on every fall. In terms of supports and resistances, the Sensex on its way south is likely to test its first support at 19,749 points, which will be a crucial support level; a close below this level means the Sensex could fall to 19,485 points, which is likely to offer strong support. But if the Sensex falls further, it could find its way down to 19,284 and 18,894 points. On its way up, the Sensex is likely to test resistance at 20,996 points, which is a moderate resistance level. If it closes above this level, it would most likely touch its all-time high of 20,498 points, which is also a moderate resistance level. A close above this level would mean new highs; 20,889 and possibly 21,057 points. In a nutshell, the market is expected to consolidate initially and move up later. Sharp gains are also not expected due to a holiday-shortened week.
This week on our technical radar are stocks such as Hindustan Zinc Ltd, Steel Authority of India Ltd (SAIL) and Bharat Earth Movers Ltd (BEML). Hindustan Zinc at its last close of Rs847.90 has a target of Rs879 with a stop-loss of Rs815. SAIL at its current price of Rs279.90 has a target of Rs303 and a stop-loss of Rs257. BEML at its current price of Rs1,672.15 has a target of Rs1,800 with stop-loss of Rs1,584. From our last week’s recommendations, HDFC Bank Ltd hit a high of Rs1,798.90, well above its target of Rs1,778. BEML could not touch its target and hit its stop-loss,, while ABB Ltd missed its target by a whisker.
Vipul Verma is a New Delhi-based investment adviser. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org