Amid choppiness and volatility, Indian equities staged a smart recovery towards the end of the week, with the Bombay Stock Exchange’s benchmark index Sensex closing with weekly gains of 510 points, or 2.71%. There were clear technical indications of a bounce back in the market as mentioned in last week’s column. However, lack of positive triggers and uncertainties related to US economy resulted in a lot of volatility on bourses in the initial part of the week. Now, with strong hopes of a further cut in interest rates in US, markets worldwide are buzzing with more gains in sight.
Ironically, US stocks, which were being dubbed as volatile in the wake of uncertainties and confusions over the state of economy, led the recovery on global bourses. US stocks, which were down over 10% from their October close in the beginning of the week, rallied sharply on news that treasury secretary Henry Paulson is expected to announce as early as Wednesday, details of the proposal to hold interest rate payments steady for many subprime borrowers who are facing higher rates and possible foreclosure. This was the major sentiment booster for the US and global markets. Later, Federal Reserve chairman Ben Bernanke’s remark on the US economy further cemented hopes that a rate cut was imminent and people started speculating on the magnitude of cut.
Global bourses rallied sharply and have now reached a point where there is not much downward potential left. The upward potential, however, will depend on the economic fundamentals of each country.
In India, things are on expected lines, be it economic growth in the second quarter, which was slightly better than expected or the annual rate of inflation, which continues to remain low. As such, there were no surprises in these numbers which were released last week. In comparison with the data of the corresponding period of the previous year, India’s economic growth figures were disappointing, but the tremendous amount of potential which remains unlocked in the economy makes it still very attractive. On the positive side, the economy’s state (which shows that money tightening measures have worked) leaves several options with the Central Bank.
The buoyancy on Indian bourses is likely to continue, despite persistent selling by foreign funds. The downside to the market is now limited with the rock bottom being the recent low of last two months. Unlike previous weeks, there are now some positive factors. The first and most important is the price of oil which is lower than the $100 peak it recently saw. The latest auto sales figures related to the month of November are not discouraging despite moderate fall in the sales of Bajaj Auto Ltd and TVS Motor Ltd, while Maruti Suzuki India Ltd has surprised many with a 26% year-on-year rise in sales. Going forward, the markets will consolidate as they move upwards. Technically, on its way up, the rising Sensex will find its first resistance at 19,643, which is an important resistance level. However, if this resistance is broken, then the next resistance would come at 19,772 points. However, if this level is also crossed, then the next big resistance will come at 20,338, which is the highest level the BSE Sensex has touched so far. On its way down, the Sensex may find support at 19,291 points, which is a moderate, but a meaningful support level, as any fall below this level would mean more downward consolidation till 19,029 points.
It is likely that the Sensex will trade above this level with the key resistance levels mentioned above in sight. This week, the frontline stocks are likely to remain in the limelight with supportive buying continuing in mid-cap stocks. The stocks, which look good for this week include, Titan Industries Ltd, Larsen & Toubro Ltd and Reliance Capital Ltd. Titan, at its last close of Rs1,529 has the potential to touch Rs1,586, with a stop loss of Rs1,482. Larsen & Toubro at its last close of Rs4,129 is in consolidation phase and is likely to see breakout on upside, which may take the stock to Rs4,283, with a stop loss of Rs3,966. Reliance Capital, at its last close of Rs2,357 has a target of Rs2,430, with a stop loss of Rs2,291.
From our last week’s recommendations, Tata Motors Ltd recommended at Rs714.65 touched a high of Rs744, which was comfortably above our target of Rs739. Tata Power Ltd recommended at Rs1,149.7 touched a high of Rs1,200 on 26 November itself, which was a tad above its target of Rs1,198. HDFC Ltd recommended at Rs2,666.3, touched a high of Rs2,807 well above its target of Rs2,780.
Vipul Verma is a New Delhi-based investment adviser. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org