After weeks of despair and gloom sunshine returned to the bourses on bargain hunting by funds and traders. Still, the beginning of last week will be remembered in the history of Indian stock markets because of the disappointing listing of shares of Reliance Power Ltd, following India’s biggest IPO ever. The stock listed not just well below the expected listing price but also below the offer price.
Ahead Of The Ticker | Vipul Verma
The episode once again proved one of the golden rules of the stock market: When euphoria dies, value returns. Reliance Power’s IPO generated a lot of hype and even die-hard critics of the share sale preferred to remain tight-lipped as the euphoria over the company’s brand value completely overshadowed its worth. Still, in the end, the market had the final say. More significantly, the entire episode was a clear illustration of investors’ greed and speculation without the requisite backing from fundamentals. Later in the week, the markets bounced back with some conviction on the back of strong global markets, especially the Asian ones that had previously suffered the most in the wake of uncertainties in the US economy. US bourses maintained their northward trend and edged up further last week. The S&P 500 and the Dow Jones Industrial Average both added 1.4%, while the Nasdaq climbed 0.7%. Indian bourses did even better with the Bombay Stock Exchange’s (BSE) Sensex and the National Stock Exchange’s S&P CNX Nifty gaining more than 3.5%. However, BSE midcap and BSE small cap indices ended the week in the red.
This week, Indian markets are likely to witness some uncertainties in the absence of any fresh positive triggers. Moreover, persistent selling by foreign funds is likely to keep sentiments depressed. It is worth mentioning here the foreign funds remained net sellers to the tune of $692.8 million (Rs2,750.4 crore) last week (till Thursday). Thus far in the month they have been net sellers to the tune of $362.7 million. This clearly indicates that foreign funds did not participate in the relief rally witnessed last week. The above figures do not include Friday’s figures which will be released on Monday by stock market regulator Sebi. Moreover, with inflation remaining above 4% and the recent hike in petrol and diesel prices, any change in monetary policy is not likely in the near future. Therefore, the market lacks triggers to sustain the momentum.
However, the US economy, which drives global markets including India, will continue to play a dominant role with some big numbers expected this week. The US markets will remain closed on Monday for the Presidents Day holiday, and market activity here is likely to remain thin. However, the action will begin from Tuesday, as the National Association of Home Builders will release its homebuilder sentiment index. While this figure is likely to remain the same as January’s, any negative surprises could spark selling at least in housing-related companies, which may eventually spill over into shares of finance companies as well. Wednesday will be an important day from the numbers point of view, as the US labour department will release its consumer price index for January, which is likely to edge up marginally. This data will be watched very carefully primarily for its economic relevance and also for cues on interest rates. On the same day, the text of minutes from the meeting of the Federal Open Market Committee on 29-30 January will be released. Investors and analysts will try to read between the lines to gain further insight into Fed’s likely action in coming weeks. On Thursday, the Philadelphia Fed’s business activity index for February will be released. Other than the data, financial results of top retailer Wal-Mart Stores Inc. and Hewlett-Packard Co. will be watched on Tuesday. Both the companies are likely to post improved results and this could boost markets and provide insights on consumer sentiment.
Most importantly, the markets will continue to track news and developments related to bond insurers. Any comprehensive revival plan for bond insurers could lift market sentiments not only in the US, but the world over, and may give markets the necessary trigger. Last week, legendary investor Warren Buffett’s offer to bond insurer’s triggered gains on Wall Street. Any bailout plan for them will be big news for the market.
Back home, Indian markets are showing signs of some improvement, but the turmoil in global markets will continue to weigh on domestic sentiments. Purely technically, markets are likely to post further gains, but there will be a tough band between 18,300 and 18,500. Any close above 18,500 points could be considered bullish and closing below this level will continue to be marred by uncertainties. On its way up, the Sensex will face its first resistance in the band mentioned above.
However, if it closes above this level, then there would be a more positive trend and the Sensex would then test 18,934 levels. If it breaks through, then the next resistance will come only at 19,487. On its way down the Sensex would test its first support at 17,690 points, followed by immediate support at 17,519 points. If it breaks this support level, then it would face its next support level at 17,136 points. However, a close below this level would be very bearish.
This week, Reliance Communications Ltd, DLF Ltd and Reliance Energy Ltd look good on our charts. Reliance Communications, at its last close of Rs611.70, has the potential to touch Rs649 with a stop loss of Rs576. DLF Ltd at its last close Rs879 has the potential to touch Rs914 with a stop-loss of Rs851. And Reliance Energy at its last close of Rs1,709.50 has a target of Rs1,768 and a stop- loss of Rs1,652.
From our last week’s recommendations, Asea Brown Boveri Ltd (ABB) touched a high of Rs1,365, which was well above its target of Rs1,328, ACC Ltd touched a high of Rs786 and missed its target, but it still remains an attractive stock this week with its last week’s target of Rs809 still intact. Andhra Bank Ltd touched a high of Rs93 and missed its target of Rs96.
Vipul Verma is a New Delhi-based investment adviser. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org