The interesting thing about this bear run on the stock markets is that investors have now stopped asking where and when the market will bottom out.
First mover: Infosys Technologies Ltd’s campus in Mysore. The firm will announce its results on 10 October. Hemant Mishra / Mint
Until last week, hopes were alive for a bottoming in the near term, but with despair all around, Wall Street is witnessing its worst week in the last seven years. Even as hopes gave way to reality about the much-hyped $700 billion (Rs32.8 trillion) US financial rescue package, sentiments on global bourses remain subdued and negative.
Indian bourses, which have fallen in sympathy with global markets, are expected to show some respect to the fundamentals in the short term and would likely wait out fiscal second quarter results to give more guidance.
Everyone is expecting second quarter financial results to paint a bleak picture not just of the recently concluded July-September period but also for this current quarter. However, all is not bad for the Indian economy as we are still talking of a growth rate of 7.5-8% in spite of high rates of inflation and the weak global environment. Last month’s industrial and manufacturing data was impressive and this week, on 10 October, the data for the month of August will further confirm the status of the industrial and manufacturing sector.
If the data continues to remain impressive and the growth rate remains above 7%, then the sentiments on the bourses will have to get a boost. However, before that, the infrastructure data for August will also be watched carefully for signs of growth.
An important date this week is 10 October as the earnings season will start in earnest with Infosys Technologies Ltd. Infosys’ results and its revenue guidance for coming quarters will have a significant bearing on market sentiment. It is widely speculated that with the turmoil in the US economy, the technology sector might paint a bleak picture of coming quarters, though it may yet report good earnings for the June-September quarter, mostly due to the sharp fall in the rupee, which makes its dollar revenues look healthier in local currency terms.
The revenue guidance of Infosys and other frontline companies will thus be the next trigger for the stock market.
Technically, the markets are set for a further fall initially and may test new lows.
The benchmark Bombay Stock Exchange (BSE) index, the Sensex, touched its recent low of 12,153.55 on 30 September and this level has become an important support level. Though the Sensex is respectably placed above this level at 12,526.32 points when it opens this morning, key technical indicators suggest that the intensity of a downward trend may push the Sensex below this support level with a probability of more than 80%.
If the Sensex touches this level, or even penetrates and bounces back to close significantly above the 12,153 level, then this will become a case of some relief rally on the bourses. However, a close below this level would mean a further fall, which would easily bring the Sensex below 12,000, points with the next support expected around 11,933 points. But if the Sensex falls below this level, then the next support for the index would come at 11,538, followed by an immediate support at 11,420 points. If this support level goes then the next support will come at 11,229 points. However, there would be a rock-bottom support at 10,909 points in the short term.
On its way up the Sensex may find its first resistance at 12,695 points, with an immediate resistance level placed at 12,770 points. However, there is a strong resistance at 12,996 points, following which the sentiments might turn positive on bourses. A close above 13,212 points would mean positive trend on the bourses and end of the bearish trend in the short term with chances of further gains in coming trading sessions.
In terms of the S&P CNX Nifty, the support level of 3,776 points is very critical. A close below this level would mean further fall, which might take the Nifty to 3,605 points. This level is very important, as a breach of this level would mean a further sharp fall on bourses, with the next crucial support coming at 3,512 points. In the short term this should be a very strong base for the Nifty and unless things worsen further, the Nifty should not fall below this level before witnessing a substantial relief rally. On its way up, the Nifty is likely to witness its first resistance at 3,864, a close but an important resistance level, as crossing this level would signal more gains because the next resistance level would come at 3,952 points. This too is a moderate resistance level and if crossed with rising volumes would signal more gains with an immediate resistance level at 4,012 points. If the Nifty manages to close above this level with rising volumes then sentiments on the bourses would get a substantial boost and the mood would turn bullish, with further gains in sight with the next resistance coming at 4,134 points. It is important to note that in case of resistance, one should also look at volumes besides the levels, as the market may give false indications like it did last week. It is worth mentioning here that the gains on Tuesday and Wednesday lacked conviction due to unsupporting volumes, which was the main reason technically leading to a sharp fall on Friday. So in such critical times, you should not rely on levels alone for trend reversal or bottom hunting and must take into consideration the volumes as well.
Among individual stocks, this week CESC Ltd, Alstom Projects India Ltd and Mahindra and Mahindra Ltd (M&M) look impressive on the charts. CESC at its last close of Rs287 a share has a short-term target of Rs303 and stop-loss of Rs263. Alstom Projects at its last close of Rs379.50 a share has a target of Rs395 and a stop-loss of Rs352. And M&M at its last close of Rs514.90 a share has a target of Rs529 and stop-loss of Rs491.
From my previous week’s recommendations, Axis Bank Ltd touched a high of Rs745, which was well above its target of Rs727. JP Associates Ltd touched a high of Rs123, but fell short of its target of Rs131. However, Tata Power Ltd tumbled, tracking a weak market,and triggered its stop-loss.
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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