Indian stock markets tanked during the last week on broad-based selling by funds and traders as rising inflation quickened fears of interest rate hike by the Reserve Bank of India. Moreover, there was disappointment over the IIP (Index of Industrial Production) data for November as it was significantly below market’s expectations.
India’s annual industrial output in November grew 2.7%—at its slowest pace in 18 months. The growth was significantly below the 11.3% annual growth in the previous month and forecasted growth of 6.6%. The weak growth can be attributed to the end of the festive season in India, when many factories close during the Diwali holiday. The low number may also be due to a high base effect from the period in the previous year.
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The slow pace of industrial production and galloping inflation could become a serious threat to the Indian economy. The worst of all was the spurt in weekly food inflation and monthly wholesale price index numbers, which shot up to 8.43% in December from 7.48 in the preceding month. Overall, it was a bad week on bourses with key indices falling about 4.25%. The beginning of the big-ticket earnings season was also not on expected lines as Infosys Technologies Ltd’s revenue guidance disappointed, though its actual numbers were broadly in line.
Globally the scenario remained good with the US clocking gains for the seventh week in a row as the earnings season started on a strong note with Alcoa Inc., JPMorgan and Intel Corp. all beating expectations with a wide margin. News from Europe was comforting as Portugal, Spain and Italy had strong results for their bond auctions last week, easing immediate concerns about the ability of the euro zone’s weakest members to raise money to meet debt obligations.
There were also reports that Germany’s economy in 2010 grew at the fastest pace in a generation. However, there were doubts that its export-fuelled expansion can defy Europe’s widening debt crisis. Rising inflation in the euro zone was a concern, especially after a warning by European Central Bank president Jean-Claude Trichet that he may raise interest rates in case inflation remains above target levels.
News from China was mixed as China’s central bank raised lenders’ required reserves on Friday for the fourth time in just over two months, stepping up the fight against inflation. There were fears that China may hike interest rates, which is likely to affect sentiments.
Monday would be a silent day on global bourses, as the US market will be closed. For rest of the week, global cues will continue to dominate the undertone. The economic calendar is light with key pointers in the US including New York Fed manufacturing for January due on Tuesday, housing starts and building permits for December due on Wednesday, existing home sales and initial jobless claims data due on Thursday.
Thursday would be an important day as key Chinese economic pointers such as the producer price index, industrial output, retail sales, consumer price index for December would be released. Apart from it, China’s fourth quarter GDP data will also be watched closely on Thursday. This week there are no significant economic indicators due in India.
Technically, the Indian bourses are in the oversold zone, but the Nifty, after breaking its critical support at 5,712 points, has widened the downward potential. It is still away from its strong support level, which is now at 5,491.
Before that the Nifty is likely to see support at 5,581, followed by another support at 5,545, which is likely to be a good support. If this support is broken, it would find the next support at 5,491. This should be the bottom of the Nifty in the current downswing.
On its way up, the Nifty is likely to see its first resistance at 5,713. If this goes, the next resistance is expected at 5,789, likely to be a good resistance. Any close above this level would be greeted with optimism. The next major resistance would come at 5,874 and a close above this level would mean a bullish outlook.
Among individual stocks, Shree Renuka Sugars Ltd, Oil and Natural Gas Corp. Ltd (ONGC) and Jindal Steel and Power Ltd look good on the charts. Shree Renuka Sugar at its last close of Rs 87.60 has a target of Rs 93 and a stop-loss at Rs 83. ONGC at its last close of Rs 1,179.05 has a target of Rs 1,212 and a stop-loss of Rs 1,148, while Jindal Steel at its last close of Rs 680.90 has a target of Rs 704 and a stop-loss of Rs 662.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org.