The Satyam Computer Services Ltd scandal rocked the bourses last week leading to a sharp fall across all sectors. It shook investors’ confidence, triggering a fresh wave of selling. It is widely feared that this could lead to a slowdown in foreign investment on Indian bourses, as the comfort factor of foreign investors with Indian companies would go down considerably.
Satyam is not the only example as many such scams have been reported globally in the past. However, from the Indian perspective, this is the first of its kind and may have some impact in the short run.
Other than foreign investors, small investors’ confidence is also badly shaken as they have lost their capital invested in Satyam. But apart from such evident losses, from now on there would be an element of suspicion for closely held companies in India.
Overall, the Satyam impact may not be detrimental in the long run as India’s economic credentials are strong enough to attract foreign investment, but in the short term the impact is clearly reflected.
It is also worth mentioning that foreign funds, who were buyers since the beginning of this year, turned big sellers post-Satyam disclosures and as per the Securities and Exchange Board of India data, they were adjudged net sellers to the tune of $262.4 million (Rs1,283 crore) on 7 January.
Moving on to this week, the markets are likely to remain cautious ahead of some big numbers due this week.
Due to general weak sentiments, numbers would be viewed with pessimism, but any big positive surprises could lead to a spurt on bourses.
Results of Reliance Industries Ltd, Reliance Infrastructure Ltd, Reliance Natural Resources Ltd, India Cements Ltd, Infosys Technologies Ltd and HDFC Bank Ltd are due this week. These companies being leaders of their respective industries might give direction to the stock markets.
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In addition to earning numbers, the industrial output and manufacturing data for November, which are due on Monday, would be watched very closely.
These numbers would be very crucial for the market as any negative indications could accelerate the fall, while moderately better numbers would be seen with caution.
However, any big surprises in industrial output data could change the sentiments.
The fall: Satyam Computer Services Ltd’s headquarters in Hyderabad. The Satyam impact may not be detrimental in the long run as India’s economic credentials are strong enough to attract foreign investment. Krishnendu Halder / Reuters
Technically, the markets are likely to bounce back early this week and edge up in the initial days of the week.
The Bombay Stock Exchange’s benchmark index, the Sensex, on its way up is likely to test its first resistance at 9,585 points, which is expected to be a moderate resistance level, but a close above this level would be the first positive signal for the market.
The Sensex would then come across its next resistance level at 9,799 points, which is likely to be a strong resistance level and may offer hurdles to the northward momentum. But a comfortable close above this level would be a big boost to market sentiments, as downward pressures would die out, raising hopes of a resumption of the uptrend.
Following this level, the next resistance would come up between 10,077 and 10,150 points, which if crossed would raise hopes of a short, sharp rally, which would find its strong resistance at 10,486 points.
However, on its way down, the Sensex would test its first major support at 9,221 points, which would be a critical support level for the falling index. A close below this level would be a bearish signal, which would indicate a further fall.
The Sensex would have a brief support at 9,162 points also, but it may not offer enough ground to a falling index and if crossed, it will push the next strong support level to 8,843-8,773 points. There is an 85% probability that the Sensex would find its short-term bottom around this level.
For the S&P CNX Nifty, the first major resistance level would come up at 2,914 points. This would be an important resistance level and a close above this level would mean strengthening of sentiments and more gains in coming sessions.
The next resistance level would come up at 2,968 points, which if crossed could lead to a sharp, short rally extending up to 3,078 points, which is a strong resistance level for the rising index. Technically, the rising Nifty would consolidate around this level for some time before moving up again.
The Nifty would finally test its most critical resistance level at 3,146 points, which if broken would trigger next leg of a big rally.
On its way down, the Nifty would find strong support at 2,811 points, which if broken would be a very bearish signal and would mean further fall with a moderate but meaningful support coming at 2,781 points. If the Nifty closes below this level, then it would mean a sharp knee-jerk reaction, which might bring the index down to 2,680 points, which would be a strong support.
Among individual stocks, this week Wipro Ltd, Bharti Airtel Ltd and Oil and Natural Gas Corp. Ltd (ONGC) look good on the charts. Wipro at its last close of Rs250.95 has a target of Rs264 and a stop-loss of Rs232. Bharti Airtel at its last close of Rs638.90 has a target of Rs653 and a stop-loss of Rs616, while ONGC at its last close of Rs669.10 has a target of Rs705 and a stop-loss of Rs621.
From the previous week’s recommendations, HDFC Bank touched a high of Rs1,125.25, which was well above its target of Rs1,046. ICICI Bank Ltd hit a high of Rs538.60, gaining 14%, well above its target of Rs491. ABB Ltd, recommended at Rs490.30, touched a high of Rs519.65, surpassing its target of Rs508.
Vipul Verma is a New Delhi-based independent investment adviser. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org