The week is likely to start on a positive note and we may see gains on Monday. However, the recent sharp rally on the bourses will keep some check on the rise. Also, there will be caution towards the middle of the week ahead of results from Infosys Technologies Ltd, due on Thursday.
Technically, the rising Sensex is likely to witness resistance in the 17,916-17,964 range. If this resistance is broken, then the next resistance is likely to come at 18,227. If Sensex closes above this level with good volumes, then it may touch levels such as 18,438. On the downside, the Sensex is likely to find first support at 17,531, following which there is a very strong support at 17,400.
If this level is broken, then selling pressure would emerge and the undertone will change on the bourses. However, for a convincing clue, it will be important that the Sensex closes below this level with good volumes.
This week, 3i Infotech Ltd and Escorts Ltd look good on the charts. 3i Infotech, at its last close of Rs149, has targets at Rs158 and Rs164 with a stop-loss of Rs139. Escorts, at the last close of Rs122, has a potential to move up to Rs132 with a stop-loss of Rs113.
From our last week’s recommendations, Kotak Mahindra Bank Ltd, recommended at Rs922, met its target of Rs949 very easily and scaled a high of Rs1,012 during the week, while Bajaj Auto Ltd, recommended at Rs2,538, hit a high of Rs2,640, well above its target of Rs2,610.
Equities rallied further during the last week on heavy foreign fund buying, despite a sharp rise in valuations of frontline stocks and persistent selling by domestic institutional investors.
Though the momentum fizzled out towards the end of the week on some profit-selling by investors and funds, a lot of action set for this week has kept the hopes alive for bulls. To add to it, a strong closing on US bourses following better than expected non-farm payroll numbers rekindled optimism about the US economy and corporate profits. The economy has added more jobs in September than economists had expected, while an earlier estimate of job losses in August was revised to a gain, quashing fears of recession.
This will be a big comforting factor for the markets.
Q2 stage set
However, now the stage is all set for the second quarter results, which will be keenly watched for further clues about the direction of the markets.
All eyes will be set on Thursday now, when Infosys will come out with its financial numbers. Since technology stocks have not participated in the ongoing rally so far, any optimism reflected by Infosys numbers can actually trigger a fresh round of buying in technology stocks.
Logically, technology stocks have already discounted the worst as the strong rupee led to sporadic bouts of selling in these stocks despite markets booming in general and touching new peaks. Analysts are hoping that the Infosys numbers would surprise the markets and the company may even upgrade its dollar guidance. If this happens, the markets may comfortably cruise ahead with confidence.
Other crucial results scheduled for this week include HDFC Bank Ltd, which will also be watched keenly as the markets will get insights into the banking sector through these numbers for a likely impact of higher interest rates.
Globally, there is not much in the offing this week, as this is a slightly lighter week on data. In the US, minutes of the Federal Reserve’s policy meeting on 18 September will be released on Tuesday. This data will be under the lens of analysts for likely clues about a follow-up rate cut. On Wednesday, data on wholesale inventories and the federal budget will be released.
However, August trade data is due on Thursday, while Friday’s data includes a report on the US Producer Price Index in September and data on September retail sales.
This week, China will resume after a week-long break, and thus there will be some action on the Chinese and Hong Kong bourses. Taiwan, Indonesia, Singapore and the Philippine bourses will also witness positive movement.
Vipul Verma is a New Delhi-based independent investment adviser. Your questions and comments are welcome at firstname.lastname@example.org