Markets may see some profit selling

Markets may see some profit selling
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First Published: Sun, Dec 04 2011. 09 55 PM IST

By Shyamal Banerjee/Mint
By Shyamal Banerjee/Mint
Updated: Sun, Dec 04 2011. 09 55 PM IST
Indian and global stock markets posted their best weekly gain in more than two years on hopes that European Union leaders will be able to tackle euro zone woes without allowing further damage. The rally on the global bourses was triggered by coordinated action by major central banks to provide liquidity to the global financial system.
By Shyamal Banerjee/Mint
The US Federal Reserve, the European Central Bank as well as the central banks of Canada, Britain, Japan and Switzerland agreed to lower the cost of existing dollar swap lines by 50 basis points from 5 December. One basis point is one-hundredth of a percentage point. The actions came as China unexpectedly cut its bank’s reserve requirement in the hope of boosting an economy running at its weakest pace since 2009. This move led to a big rally on the US and European bourses.
Adding to the fire was the US economic data, which sounded so positive after several quarters. Unemployment, the biggest threat to US economic recovery, showed remarkable improvement, fanning hopes about the US economy. Private sector jobs growth, as reported by the ADP National Employment Report, showed US employers added 206,000 jobs, which was well above the forecast. The most closely watched nonfarm payroll data, which was released on Friday, was the biggest surprise as it showed unemployment rate in the US dropped to a two-and-a-half-year low.
At home, optimism was in the air on hopes of a revival in foreign fund inflows and expectations of a pick-up in domestic growth. Key benchmark Indian indices, which gained over 7% over the week, were also aided by the hopes of revival of economic reforms. However, some hopes were dented over weekend reports that the government has softened its stand on foreign direct investment (FDI) in retail.
Mamata Banerjee, who was fiercely against the policy and whose Trinamool Congress has 19 lawmakers in the Congress party-led ruling coalition, said finance minister Pranab Mukherjee had told her the reform would be put on hold until a consensus is arrived at within the coalition. This could seriously dent the positive sentiments on the Indian bourses as it clearly shows weakness of the current government and its inability to take tough decisions needed to push through economic reforms.
Going forward, the markets would follow the political drama around FDI in retail and also take cues from Europe and the US, which are like a pivot around which the global bourses are revolving. There is not much on India’s economic platter and only India’s service sector purchasing managers’ index (PMI) would be released on Monday. However, globally, market sentiments will be once again on tenterhooks ahead of a crucial summit of the euro zone’s political leaders on 9 December, which is being held to find solutions to the ballooning debt.
There are hopes this time the leaders will put forward a concrete plan and a well-defined policy framework for a possible resolution. But despite these hopes, market sentiments would be cautious as prior to this there have been 14 such summits which, though positive and progressive, have been unable to find a road map to ending euro zone’s woes. So there would be a good amount of caution in the markets as well. The US economic calendar for this week is also light, with data on factory orders, the ISM services report, weekly initial jobless claims and the trade balance among the highlights.
Technically, the Indian markets are near their short-term strong resistance levels, which could see some profit selling. In terms of the Nifty index on the National Stock Exchange, there is a strong resistance at 5,097 and, technically, the Nifty is likely to see profit selling around this level and there could be some pull back. If the Nifty pulls back from this level, there could be a mild technical correction, which may range over three trading days.
If the Nifty crosses and settles above this level, the target for the Nifty would shift to 5,320 points. However, technical analysis suggests there are signs of this resistance holding; unless there is any significant development on the global front. If the 5,097 level goes, the next resistance would come at 5,147, followed by a strong resistance at 5,212 points. If this is also cleared, there could be a rally up to 5,320 points.
On its way down, the Nifty has its first support at 4,918, which is a strong resistance; however, if this level goes, the next major support would come at 4,867, which is also a strong support level and should hold.
Among individual stocks, ABB Ltd, Bhushan Steel Ltd and Reliance Infra Ltd look good. ABB, at its last close of Rs 618.75, has a target of Rs 630, and a stop-loss of Rs 604; Bhushan Steel, at its last close of Rs 322.25, has a target of Rs 333, and a stop-loss of Rs 310, while Reliance Infra, at its last close of Rs 413.40, has a target of Rs 425, and a stop-loss of Rs 401.
From my previous week’s recommendations, all three recommendations overshot their targets.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Sun, Dec 04 2011. 09 55 PM IST