Riding the earnings boom, the stock markets once again entered the bull orbit on heavy buying by funds and traders. Foreign funds, which were waiting on the sidelines for the corporate results, got back into action after most of the frontline companies surpassed the Street’s estimates on earnings. This was the trigger, which the market participants were waiting for—for a long time. Bullish trend on global bourses, following healthy earnings, pumped the adrenal further on the local bourses as the key Sensex posted a gain of 513.33 points for the week. Concerns over tightening of the Chinese monetary policy sent shivers down the spine of many Asian bourses during the week. But for the first time this year, Indian bourses showed resilience.
The trend, which started last week, is likely to continue this week also, despite a lot of uncertainties. The first and most important being the policy review meeting of the Reserve Bank of India (RBI) on 24 April. This is a crucial meeting and markets may actually wait for the outcome of this meeting for taking clues about future trends. Though it is mostly expected that RBI is unlikely to hike lending rates, the higher-than-expected inflation numbers announced on Friday (20 April) may prompt the central bank to consider yet another hike to keep the inflation under check. The finance minister’s views on credit growth has also not helped clear the air on this issue. Therefore, investors may remain on the tenterhooks at least in the early part of the week.
Next in line are the expiry of derivative contracts. The derivatives contracts for the month will expire on 26 April. So some volatility is also expected towards the middle of the week. So far, the roll-over on the bourses has been pretty smooth and there are a lot of short positions in the derivatives segment, which means any squaring up of short positions could trigger more gains. The recent sharp rise on the bourses could be attributed to short-covering in technology counters and build-up of fresh long positions in other key stocks, which narrowed the discount in the index futures. Moreover, the rising open interest in May contracts suggests that there is a fresh build-up in positions and active roll-over, which is a positive sign for the stock markets.
From the earnings point of view also, this week is quite important as index majors, including Maruti Udyog Ltd, HDFC Bank Ltd, Reliance Industries Ltd (RIL), Ranbaxy Laboratories Ltd and Bharti Airtel Ltd are going to announce their earnings and these numbers will weigh on market sentiments. Though most of these companies are likely to post robust numbers, any shortfalls, especially in case of RIL, can trigger a negative move on the broader market.
Technically, the market is bullish. In our last week’s column, we had noted that if the Sensex crosses 13,442 points, then it would trigger a bull run. The Sensex, after crossing this level, is well placed with more gains in the offing this week. For the rising Sensex, the first resistance is likely to come up at 14,043 points, following which there would be the next resistance at 14,334 points. This is only a moderate resistance and any significant buying can help the Sensex target levels of 14,542-14,612 points, which is also very close to the all-time high of the index. On the downside, the Sensex is likely to get its first support at 13,753 points, which is a strong support. If this support is broken, it can pull down the benchmark index to 13,478 points.
This week on our technical radar are stocks such as Suzlon Energy Ltd, HDFC Bank and Dr Reddy’s Laboratories Ltd. Suzlon is typically a short-term stock, which is currently being traded at Rs1,190. The stock has a potential to move up to Rs1,248 in the short-term, with a stop loss of Rs1,137. HDFC Bank is also a good buy at the current levels of Rs994 and has the potential to move up to Rs1,048, with a stop loss of Rs946. However, since the results of the company are due this week and the outcome of RBI’s policy review meeting could also influence this stock, so investors should either factor these points or may wait for these developments before taking a call on this stock. Dr Reddy’s is also in a consolidation phase and may see a small, short spurt, which could take it to Rs740. The stock is currently trading at Rs716 and has a short-term stop loss of Rs692.
Last week, we had mentioned HDFC Ltd, IVRCL Infrastructure Ltd and Lanco Infrastructure Ltd. HDFC gained more than Rs100 over the previous week’s close of Rs1,563 and still has steam left. IVRCL, which closed the week before at Rs276, also did well and touched a high of Rs293.45 during the week, a tad below our target of Rs299. Lanco Infrastrucure, which traded at Rs151 when mentioned in this column last week, trailed technical expectations and touched a high of Rs158 during the last week against the expectation of Rs164.
Vipul Verma is a Delhi-based investment advisor. Your comments, questions and reactions to this column are welcome at email@example.com.