Stocks continued to rally on global bourses driven by good corporate earnings and heavy liquidity chasing quality buys. The Indian markets too witnessed heavy buying by foreign funds—their investments in India to date are now more than the total investments made by them in the country in the whole of 2006. At this point of time, things are looking quite rosy in the investment world.
A fresh fall on US bourses on Friday dented sentiments considerably as results of Caterpillar Inc. and Google Inc. dragged the markets lower. Moreover, fresh concerns over subprime mortgage contagion sparked selling. Yet, the US markets may be only down and not out, as investors in the country await another mega earnings week, which include earnings announcements by Texas Instruments, American Express, Halliburton, Amazon.com, Lockheed Martin, McDonald’s, Pepsico, Apple Inc., Qualcomm Inc., Boeing, Conoco Phillips, Xerox Corp., Ford Motor Co., Dow Chemical and Exxon Mobil. All these companies are expected to post good results. Rhat could offset Friday’s fall. China may add to the worries of investors raising interest rates after most Asian markets closed on Friday.
However, given the excessive liquidity on global bourses, it seems that markets, especially India’s, will be resilient to this move which was pretty much on expected lines. Since China’s rate hike followed the economy’s stellar performance in the second quarter—the world’s fourth largest economy grew at its fastest pace in more than 11 years—it could well serve as a positive trigger. Clearly, in the short term, despite the roadblocks mentioned above, the mood as well as trend on global bourses will remain bullish and stock markets may gain in the short term. However, a word of caution is due here. So far we have seen the stock markets with a myopic vision. Looking beyond earnings and liquidity, some bigger concerns are waiting to explode. The fresh weakness of the US dollar against other major currencies is one, as it may spark bigger problems resulting in the sudden erosion of liquidity and consequently heavy selling across the globe.
In the wake of a weakening dollar, which fell to a record low against the euro on Friday, investors should now shift their focus from the Dow Jones industrial average to the US dollar index. Any further significant fall in this index, which is currently at 80.263, could serve as a death blow for equity markets across the globe. The level of 79.75 could be an important level to watch for. A weak dollar may help US multinationals by boosting their profits, but it has far-reaching and long-lasting impact on the economy. But as long as the going is smooth, it is better to go with the trend.
Key announcements this week
Back home, this week is going to be very important with some big ticket earnings announcements such as those of Oil and Natural Gas Corp. Ltd, Bharti Airtel Ltd, Reliance Industries Ltd, State Bank of India Ltd, Maruti Udyog Ltd and Suzlon Energy Ltd. Moreover, the derivative contracts for July will expire on Thursday, which could cause increased intraday volatility on bourses. The regular data on inflation due on Friday does not hold much suspense as it is expected to remain range-bound. This week, earnings and derivatives will decide what will happen on bourses. Technically speaking, the market is showing some signs of tiredness now, but with some steam left, the fall is not much likely to go beyond intraday movements and a mild technical correction. In terms of support and resistance, the rising Sensex is likely to witness its first resistance at 15,758, following which the Sensex may aim for 16,000 points. However on the down side, there is a major support band in the region of 15,211-15,117 points. If the Sensex falls below this level, then the market will be in danger zone and this could signal further fall on bourses. However, any fall above the trading band mentioned above would be a part of technical correction.
This week, Jai Prakash Associates Ltd, HDFC Ltd and Titan Industries Ltd look good on charts. Jai Prakash Associates, at the current market price of Rs835, has a potential to move up to Rs870 with a stop loss of Rs796. HDFC Ltd has a major resistance at Rs2,004, and if this level is crossed then one can expect it to touch Rs2,060. HDFC will also be in focus ahead of the crucial review of credit policy by the Reserve Bank of India scheduled next week. Titan Industries is a stock for brave hearts as it is likely to be very volatile. At the current price of Rs1275, the stock has a potential to move upto Rs1350 with a stop loss of Rs1236. From our last week’s recommendations, State Bank of India Ltd and Bharat Electronics Ltd hit their targets on Monday itself. State Bank of India, recommended at Rs1,557 touched Rs1,620 the same day. Bharat Electronics also touched Rs1,670 very smoothly. However ABB had to struggle last week. It is still in buy mode and has a big target on the charts.
Vipul Verma is a Delhi-based investment adviser. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org