Last week was a week of contradictions.
While the global markets were shivering over fears of recession in the US, the Dow and the S&P 500 recorded their best weekly gains in almost five years, gaining 4.4% and 4.9%, respectively. The Nasdaq posted its best one-week jump in nearly 18 months, finishing up 3.8% in the same period.
However, all major Indian indices ended in red, with BSE Sensex down 0.65% and S&P CNX Nifty of NSE down 1.23% over the week. This was despite a liberal rate cut of 50 basis points by the US Federal Reserve, and broadly positive economic environment outlined by the Reserve Bank of India in its credit policy review despite recessionary pressures in the US.
So, what went wrong with the Indian bourses?
The only logical answer seems to be trader sentiment. The sentiments on markets were so negative that despite a build-up of positive economic environment and reasonably good third quarter results, the markets continued to fall. Blame it on money locked in Reliance Power Ltd initial public offering (IPO), net selling by foreign funds or disappointment over no changes in the credit policy, but the key factor, triggering the fall was sheer fear and lack of confidence.
Technically, the stock market movement of the last two weeks shows it is in a consolidation, which I have been writing in my column. So, the key question is what lies ahead?
The Indian markets are now poised for some gains in the beginning of the week as the global sentiments have improved substantially.
Moreover, the liquidity is also likely to improve following unlocking of money from Reliance Power IPO, which may see increased retail participation. But, sustainability of the trend would be an issue.
Since the gains on Friday on US bourses were triggered by Microsoft Corp.’s $44.6 billion (Rs1.75 trillion) bid for Yahoo Inc., which underplayed the jobs data showing that US employers cut payrolls in January for the first time in four-and-a-half years. This was indeed a clear signal that the US economy is on the brink of recession. Had the Microsoft offer not been announced, US markets might have fallen on jobs data. Though there was some ray of hope for US economy in the form of better than expected January data related to factory activity, which eased some worries about jobs data. But, the situation remained gloomy on the economic front.
Coming back to the question of sustainability of initial trend, it appears that if there is no big negative news on the economic front in the US, markets may gain. In fact a lot has changed after Microsoft’s offer to buy Yahoo as the offer came at a 62% premium to the pre-bid price of Yahoo on Nasdaq. The stock rallied sharply on Friday to match the offer price. The higher offer price signifies that the US equities may have corrected enough to factor in the recession or at least the recessionary fears. Going by this interpretation, there should not be much of downward potential left on US bourses.
Moreover, this week, the data in the US is not very critical, so that should offer some relief to the markets world over. This week, on Monday, the commerce department is expected to report new orders for non-durable goods at US factories and on Tuesday, the Institute for Supply Management is due to release its non-manufacturing index for January. Since the market has already factored a mild fall, moderately negative data may not upset the markets. Any positive surprises could actually trigger gains. Once again weekly jobs data will be the focus on Thursday, when a filing by US workers seeking jobless aid for the first time will be released for last week. Going by expectations, the benefits claims are likely to fall as compared with the previous week.
Back home, the earnings season is now drawing to close with majority of big numbers now out. So, there would be no major triggers and the market movement would depend on liquidity. Technically, the Sensex is now headed north and on its way up, it will face the first resistance at 18,363 points, following which the next resistance is likely to come up at 18,488 points. This will be a key resistance level and if it is broken, then the Sensex will touch 19,069 points and then 19,273 points. This will be another key resistance level and a break above this level could trigger a short rally. On its way down, the Sensex would test its first support at 17,997 points, following which the next support is likely to come at 17,776 and then at 17,422.
This week, technically Oil and Natural Gas Corp. Ltd (ONGC), Steel Authority of India Ltd (SAIL) and Titan Industries Ltd are looking good on charts.
ONGC, at its last close of Rs1044.5 a share, has a target of Rs1,076 and a stop loss of Rs1,006. SAIL, at its last close of Rs225.45 a share, has a short-term target of Rs241 and a stop loss of Rs206. Titan, which closed at Rs1,127.85 a share, has a short-term target of Rs1,268 and a stop loss of Rs1,191.
From our last week’s recommendations, Tata Steel Ltd touched a high of Rs781 a share, which was well above its target of Rs750, gaining more than 9.38% over the week. Bharat Heavy Electricals Ltd touched a high of Rs2,137.7 a share and missed its target of Rs2,280 as it traded range bound for the entire week. Kotak Mahindra Bank Ltd touched a high of Rs1,149.7 a share, which was just above its target of Rs1148.
Vipul Verma is a New Delhi-based investment adviser. Your comments, questions and reactions to this column are welcome at email@example.com