The stock market ended 2006-07 roughly 16% over the previous year. But unlike the previous year, the market begins the new fiscal year on an uncertain footing. Inflation remains at 6.5%, and oil prices are north-bound. On the back of a liquidity crunch in the market and fears of an economic slowdown in the US, India’s largest trading partner, the rupee has strengthened to where it was seven years ago.
In a surprise move, the Reserve Bank of India (RBI) raised the short-term lending rate by 25 basis points, and the cash balance other banks have to keep with it by 50 basis points, both measures targeted at reining in inflation.
Reacting quickly to RBI’s move, India’s top private-sector lender ICICI Bank on Saturday raised its benchmark lending rate by 100 basis points to 15.75%, effective 1 April. The bank also raised its floating reference rate for consumer loans, including home loans, by 100 basis points to 12.75%, effective immediately. That spells trouble for several sectors including housing, construction (other than infrastructure), automotive, banking and consumer durables. The stocks of these companies could fall when trading resumes in the new year.
From the stock market’s perspective, this is bad news. It is likely that the market responds to RBI’s decision, announced after all markets closed on Friday, with a knee-jerk reaction when trading resumes today. Bankers and the market expected some action from RBI on the interest rate front towards the end of April; no one expected it in end-March. Still, with this hike, it is likely that interest rates are peaking in the short term. Thus, the impact of the latest round of money-tightening efforts by the central bank could be short-lived.
That may not help the stock market much. The market lacks other positive triggers and cues from global markets and other economies are not very encouraging. Sentiment on the bourses, then, will likely remain subdued. The only positive trigger expected in the coming days is the declaration of fourth-quarter and full-year results, but expectations of lower revenue and lower revenue guidance for the year ahead have already cast their shadow on these numbers.
This week, some international factors could also weigh in on market sentiment. The first trigger could come from the Japanese central bank’s quarterly survey of corporate sentiment on Monday, which is likely to be good, following better- than-expected industrial output data released on Friday. Data from the US, expected later, including the non-farm payrolls jobs report, may also impact market sentiment.
Overall, the market could be choppy this week, with losses in initial days. But the fall is not likely to be across sectors as some stocks may selectively witness bargain buying. Technically, the market remains in consolidation mode with no confirmation of a short-term uptrend despite two days of gains, which means the upward movement may lose steam. On its way down, the Sensex could test its first support at 12,844 points. If this crucial support level is broken, the next support could come at 12,585 points. This level is likely to give good support to a falling Sensex, but if this too is breached, it could test its recent low of 12,312 points. On its way up, a close above 13,200 could trigger more buying but the market will come out of the woods only if it closes above 13,480 points.
This week, stocks of Tata Power, Reliance Energy, Bharti Airtel and Hero Honda look good on our charts. Tata Power closed at Rs509 last week but has the potential to move up to Rs541 in future and its short-term rock bottom price is Rs485.
Reliance Energy, which closed at Rs494 is a good portfolio pick with upward potential of Rs42 from current levels. It has a rock-bottom price at Rs455.
Bharti Airtel, which has gained steadily in the last few months, has more steam left for growth and from Rs764 now, the scrip can touch Rs786 with short-term support at Rs736.
Hero Honda is a good pick this week and its stock has the potential to rise by Rs36 from the current level of Rs689. However, it would be best to track the broader market and indulge in some bottom fishing in these stocks.
In our column last week, Hero Honda, then trading at Rs679.65, looked good to touch Rs740 if it crossed Rs705. After an initial dip in line with the broader market, the stock recovered sharply from lower levels and closed up Rs11 over the previous week’s close.
Titan was trading at Rs852.60 and looked good to touch Rs917 if it crossed the resistance level of Rs862. The stock tracked the broader market initially but bounced back from lower levels to close Rs9.65 lower against its previous close.
GMR Infrastructure traded weak last week and closed Rs11.75 lower.
(Vipul Verma is a Delhi-based investment advisor. Your comments, questions and reactions to this column are welcome at email@example.com.)