Last week ended on a high note as a slew of positive economic data lifted the sentiments on global bourses. First, China surprised with the jump in its exports and imports in the month of November. What was even more surprising was higher bank lending, as China has been aggressive with its monetary policy off late, and following these two indicators, China increased reserve requirements for banks, but kept interest rates on hold. India, too, sprung a surprise after data showed industrial output in October grew at its fastest pace in three months, powered by demand for consumer durable goods such as cars, triggering rally on bourses. However, concerns remained over the ongoing regulatory crackdown on firms involved in corruption scandals as the scope of investigations widened. There was also uncertainty about telecom companies as reports resurfaced that the government may cancel some telecom licences.
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Moving on, the next set of good news came from the US, which cemented the view that the world’s largest economy is on the path of recovery. On Friday, data showed consumer sentiment rose more than expected in early December. All indicators pointed to a broadbased recovery. Above all, no fresh bad news from Europe helped global sentiments.
The threat of hike in interest rates by China still looms large, especially after signs that the Chinese economy is still overheating and the tightening efforts so far did not yield desired results as the property investment zoomed further. The hike in interest rates in China will be a dampner for the stock market in the short term.
US markets are looking on firm footing and S&P 500 has crossed its critical resistance level and is looking strong at current levels. However, since it is now inching close to the overbought zone, so there will be some kind of pressure on a further rise. Moreover, since the Nasdaq Composite has witnessed gains for eight consecutive days, the chances of some profit selling are likely to emerge shortly.
In view of these facts, the outlook remains cautiously optimistic. Since the holiday mood will dawn on markets due to Christmas, volumes are likely to remain low. This week’s economic calendar in US is quite hectic and inflation data for November will dominate the week’s economic calendar, with the US producer price index due on Tuesday and the US consumer price index set for Wednesday. The US Federal Reserve’s policymaking body, the Federal Open Markets Committee, will convene on Tuesday for its last meeting of the year.
Back home, the economic calendar is light and the focus would be on the policy review meeting of the Reserve Bank of India (RBI) on Thursday. Since no change in policy is expected, it is likely to be a non-event from the stock market’s perspective. However, if RBI makes some changes in its policy, it will surely get reflected on the bourses. India will continue to take leads from global bourses and on updates on various corruption scandals.
Technically, the markets are in recovery mode, which means that there are no confirmed signs of trend-reversal on the bourses, which continue to remain bearish presently. If the Sensex closes above 20,048 points and the Nifty above 6,042, the bourses will continue to remain bearish.
In the present situation, the Nifty has its first resistance at 5,879. A comfortable close above this level, accompanied by good volumes, would be the first sign of firmness coming to the Nifty. The next resistance is immediately placed at 5,916, which is a moderate resistance, followed by a strong one at 6,042. If this resistance is breached, there could be sustained gains on the bourses with targets such as 6,132 in short term.
On the downside, there is a minor but important support at 5,838, which, if broken, would mean weak sentiments. The next support for a falling Nifty is likely to come at 5,801, which would be a good support, but it may fall short of strength if the fall comes on heavy volumes. If this level is breached, the next meaningful support will come at 5,712. This support is likely to be strong. But if the Nifty closes below this level accompanied by heavy volumes, then the next strong support would come at 5,548 .
Among individual stocks, Titan Industries Ltd, Dr Reddy’s Laboratories Ltd and Steel Authority of India Ltd (SAIL) look good on the charts. Titan Industries at its last close of Rs3,447 has a target of Rs3,512 and a stop-loss of Rs3,368. Dr Reddy’s at its last close of Rs1,808.35 has a target of Rs1,842 and a stop-loss at Rs1,772, while SAIL at its last close of Rs176.50 has a target of Rs182 and a stop-loss of Rs170.
Vipul Verma is chief executive officer, moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org