After three weeks of sharp losses, equities closed higher for the week ended 9 March on bargain buying by funds and traders. Though factors such as talk of recession in the US and higher than expected rate of domestic inflation continued to dominate sentiment, attractive valuations on individual stocks prompted some bargain buying on bourses.
However, the trend still remains unclear and despite some gains, the resumption of any positive rally still looks a bit uncertain. The main reason is that the market clearly lacks positive triggers, following a turmoil in various global markets. Moreover, the government’s intervention in steel and cement industry has significantly dented sentiment, rattling the confidence of many investors. In my opinion, the market sentiments were not so badly affected by either the Budget itself or even soaring inflation as they were from the government intervention in steel and cement sectors.
In such an environment, the next big positive trigger could come only from fiscal fourth-quarter corporate earnings, which are still expected to be quite strong.
Coupled with harvest season and its positive impact on inflation data in April, the markets could be looking at a better performance.
Meanwhile, this week, international factors could again dominate. This morning, markets may react positively to the weekend news on US non-farm payrolls data that showed the economy added 97,000 jobs in February, the smallest gain in two years. This might ease the potential recession worries, which may prompt some buying by investors. Also, a weakening of the Japanese yen may mean that the unwinding of carry trades could slow, which may again bring in some stability on global bourses.
This view is also echoed by the technical charts, which show that the market is currently in a consolidation phase. But in the short term, unless the Bombay Stock Exchange’s benchmark index, the Sensex, closes above 13,424 points, an upward rally cannot be visualized. Even on its way up, the Sensex is likely to face resistance at 13,253 points, which is a short-term, crucial resistance level. If this level is broken, then market sentiments would improve substantially. However, any close above 13,424 points should be seen as a comfort zone, following which, a northward trend may gather momentum. On its way down, the Sensex would test the support level of 12,594 points. But this being a minor support level, the critical support level would come only at 12,382 points. If the Sensex bounces back from this level, then the index would once again move up to test its resistance at 13,252 points. But if this level is breached, then there could be more trouble for the bulls and the Sensex could fall to 11,800 points.
Among individual stocks, HDFC Bank Ltd looks good on charts. It has resistance at Rs988 a share, which is a very crucial level for the stock. If this level is broken, then the stock could witness a short-term rally of up to Rs77, as the next big resistance is placed at Rs1,060 a share. However the stock has two intermediary resistance levels as well, which are placed at Rs1,020 and Rs1,042. On its way down, the stock has a rock-bottom support at Rs903. However, before that, it is likely to find good support at Rs940 as well. HDFC Bank closed Friday at Rs975, up Rs2.70, off its 52-week high of Rs1,150, but well ahead of the 52-week low of Rs620.
In a nutshell, this week looks good, but choppiness on the bourses cannot be ruled out. One can go long with tight stop-loss and short targets.