It was probably the longest trading week in recent times as market hours for most investors and analysts got extended from 9.55am to 3.30pm, to up to 2.00am.
That was because signals from the US markets were directing global bourses and everyone had their sight set on the Dow Jones and Nasdaq. Like most global markets, the Indian markets, too, acted in tandem with US bourses, which were rocked by subprime jitters. This, despite the fact that we had nothing to do with the subprime crisis as none of the Indian financial institutions are directly involved.
Still, fears of a global credit squeeze sent shockwaves through global bourses including India—the ongoing rally in markets until then had been driven by excessive liquidity. As of now, we are in the middle of this crisis and the bad news is that it is still not over.
It is feared that many more casualties of the subprime mortgage crisis may come into light in the coming days, which will keep sentiments on bourses jittery, as markets can’t discount something about which they still do not know anything. Central banks in the US, Europe, Canada, Japan and other countries have already injected huge sums of money into the financial systems to meet the liquidity crunch and have committed to do the needful as and when the situation demands. But this is like a life support system, which will keep the patient alive. There is still a lot of concern over the actual health of the patient.
What lies ahead?
The big question is what lies ahead? At the outset, the problem still looms large on the global economic front, but with damage control measures already in place, the intensity of this problem is likely to wane unless bigger casualties are reported. As far as the movement of stock prices is concerned, there are no positive triggers as of now as the subprime mortgage crisis has cast it shadow on a bumper earnings season, low inflation rate and high economic growth.
In such a situation, the market tends to correct more and looks for lower levels to justify valuations.
However, one thing is still clear: this is not the beginning of a bear market as it is widely speculated. Investors should understand the basic rule of the game: The bigger the rally, the bigger the correction.
This week, the focus in global markets will shift to data being released in the US, which is very critical in many terms as it may throw light on possible action by the US Federal Reserve in time to come. This Monday, US will report July retail sales and June business inventories. Retail sales would give necessary clues about the change in retail spending pattern following the subprime mortgage crisis. On Tuesday, the country will report July producer prices. Wednesday will be an equally important day when the closely watched core CPI (or consumer price index) is released—this excludes volatile food and energy prices and may give the market some direction. On Thursday, data on July housing starts and building permits will be reported. This will be the most critical economic data as it is directly linked to the current crisis.
Back home, the markets are likely to witnesses volatile movement. However, the intensity of the volatility is likely to decline unless more layers of the US subprime crisis are uncovered. Markets are also likely to develop resilience, as the focus shifts back to the strength of the domestic economy.
Technically, the Bombay Stock Exchange’s benchmark index, the Sensex, is likely to witness a bounce back, but the undertone will continue to remain weak. The BSE Sensex is likely to witness its first major resistance around 15,232 points, a key resistance level. If the Sensex crosses this, then the next major resistance is at 15,550 points. However on the downside, the first support is now placed at 14,580 points. If the Sensex breaches this, then the next level will come at 14,352 points, a fall below this would mean bearish undertone and see the Sensex hugging 14,000 points.
Stocks to watch
This week, Bajaj Auto Ltd, Maruti Udyog Ltd and Century Textiles and Industries Ltd look good on our charts. Bajaj Auto, at its last close of Rs2,318 has a potential to move to Rs2,400 with a stop loss of Rs2,245. Maruti Udyog Ltd at its current price of Rs810 can see a short term spurt, which can take it upto Rs846 with a stop loss of Rs781. Century Textiles is a good technical bet at current price of Rs703. It has the potential to touch Rs748 with stop loss of Rs672.
From our last week’s recommendations, Bank of Baroda Ltd recommended at Rs295 touched its target of Rs312 easily and reached a high of Rs322. Punj Lloyd Ltd recommended at Rs275 also hit its target of Rs291 easily hitting a high of Rs303 during the week. Interestingly, despite extreme volatility on bourses both these stocks fared well.
Vipul Verma is a Delhi-based investment adviser. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org