Technically, this week the market looks good. On the rising side, the Sensex has a resistance band in the region of 14,330-14,360 points. A conclusive closing above this level would mean more gains as the next key resistance level would only come at 14,613 points. However, if this level is also broken, then the all-time high of 14,723.88 would be the next target, which would be relatively easy to breach.
On the down side, there is good support at 14,010, following which there is another close support at 13,962 points. However, if the Sensex falls below this level, then there would be a strong support only at 13,736.
This week, on our technical radar, are stocks including Century Textiles Ltd, IVRCL Infrastructure Ltd and Punjab National Bank.
Century Textiles, at a current rate of Rs604, has the potential to move up to Rs639, with a stop-loss of Rs575. IVRCL, at current close of Rs335, has the short-term potential to move up to Rs356 with a longer target of Rs379, and a stop-loss of Rs318. PNB is in consolidation phase, and from the current price of Rs488, it can see a spurt to Rs506 with a stop-loss of Rs471. From last week’s recommendations, HDFC Bank Ltd hit a high of Rs1,128 on Monday, which was close to our target of Rs1,135. Reliance Communication Ltd touched a high of Rs524.05. GMR Infrastructure Ltd had a great run on bourses. The stock recommended at Rs508, hit a high of Rs572.95 during the same week, which was way above its target.
Last week was like a rollercoaster on the global exchanges as all major bourses danced to the tune of US economic data, which saw bond yields swinging in both directions. The week started on a positive note as bourses across Asia, including India, resumed with an upward gap buoyed by gains on US bourses. However, concerns over the DLF IPO restricted gains on Indian bourses. As the issue progressed, confidence returned, but then fresh concerns over higher US bond yields and rising global interest rates took their toll and drove the market lower. But a strong showing by the US economy later in the week led to a sharp recovery. The mood on the US bourses turned positive after Thursday’s report on core producer prices, which were in line with expectations. It got a further boost on Friday, when the core consumer price index rose 0.1% in May, below Wall Street’s expectations of a 0.2% gain. The analysis of both these key numbers reinforced the view that the US Federal Reserve is likely to hold benchmark US interest rates steady.
Back home, the market struggled, in the absence of any fresh trigger. However, oversubscription of the DLF IPO eased concerns over liquidity on bourses, leading to a recovery in the later part of the week. Another mega public issue of ICICI Bank Ltd hits the market on Tuesday. But this week, the focus will be on the rupee, which is likely to appreciate due to increased capital inflows. This may have a detrimental effect on export-oriented companies, especially IT companies.
Also, now the guessing game on Q1 earnings will begin as the quarter heads to a close. This could mean some consolidation in the market. Going by primary indicators such as advance tax collections, industrial growth rate and monthly sales, the performance of Indian firms in the first quarter looks promising, which is contrary to analysts’ assumptions that monetary tightening could take a toll on the earnings.
The market is likely to resume on a positive note with an upward gap as strong US data will push equities higher across Asian markets. But later in the week, the trend will depend on a lot of domestic and international factors.
There are fresh concerns on China’s stock markets after Premier Wen Jiabao warned that the government would tighten policy further to prevent the economy from overheating. Even though global markets have developed resilience to the swings in China’s markets, this may have cascading effect on global bourses. The US economy will also be tested on the grounds of housing starts. On Tuesday, the commerce department will issue data on home construction and building permits for May. It is expected that the housing starts may fall to an annual pace of 1.480 million units from 1.528 million in April. But the building permits are expected to pick up a bit to an annual pace of 1.471 million units from a revised 1.457 million for April. Though fall in housing starts has already been factored in, any significant negative surprises on this count may give market a jolt. Broadly speaking, sentiments on the US bourses would remain strong ahead of first quarter earnings announcement. On Thursday, a report on leading economic indicators and another on regional manufacturing activity, as well as weekly jobless claims, will be published, which will also be watched carefully.
Vipul Verma is a Delhi-based investment adviser. Write to us at firstname.lastname@example.org.