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Markets to dance to budget tune

Markets to dance to budget tune
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First Published: Sun, Feb 27 2011. 07 48 PM IST
Updated: Sun, Feb 27 2011. 07 48 PM IST
After a brief rise initially, equities fell sharply towards the end of the week mainly driven by the turmoil in Libya, and continued tension in the Middle East. Oil wreaked havoc this time as Nymex crude touched a high of $103.41, while Brent crude touched $120 during the week. The oil prices cooled off after Saudi Arabia reassured to pump up extra oil to meet any shortfall in supplies due to the unrest in Libya.
It is estimated that Saudi Arabia has about four million barrels per day of spare capacity, which is enough to absorb oil shock from Libya in the short term. However, since the dissent has also been reported in Saudi Arabia, though of low intensity, the world is more concerned about the situation when the uprising grips other oil producing nations as well. Moreover, there have also been rumours that Saudi Arabia has overstated its oil reserves, which has also contributed to panic on oil.
Indian bourses, which have been struggling due to unbridled inflation and its impact on the overall economy, had a strong reason to worry. Indian crude basket shot up sharply, raising concerns that if oil does not cool in the short term, it may have serious repercussions. This was clearly reflected on the bourses towards the end of the week, as equities tanked on heavy selling by funds and traders.
Global bourses also succumbed to the surge in oil prices and Germany was the top loser among developed economies.
US benchmarks fell about 1.5% for the week, after seeing strong gains in the last three consecutive weeks. Surprisingly, China did not fall much despite concerns over monetary tightening and its benchmark lost only 0.73%. Indian benchmark fell about 2.8% and was the worst performing Asian bourse.
The stage is all set for the biggest economic event of the year—the federal budget, which will be unveiled on Monday. Indian markets are likely to resume on humble notes with some optimism.
But later during the day, they are more likely to dance to the tune of budgetary proposals. Since the proposals would be hugely influencing the markets, I would suggest that readers should primarily focus on them and, secondarily, on the technical perspective in this special situation.
Technically, the markets look set for a short spurt in key indices and the Nifty index on the National Stock Exchange on its way up will see the first resistance at 5,340, which is a minor resistance and would go easily. Following this, I am seeing a rally of 93 points, which could push it to 5,429. This would be the point where the Nifty could see resistance and some profit selling.
Technically, if this level goes, then the next resistance would come at 5,491 points, followed by a good resistance at 5,562. If the Nifty settles above this, then the sentiment would turn positive.
On its way down, the Nifty is likely to see first support at 5,231, which is likely to be a good support level; but since the momentum on bourses continues to be weak, so this level might not hold in case downward momentum picks up.
In that case, the next prominent support would come at 5,156 points, which is also a moderate support level and may not sustain heavy southward momentum. In case this level is breached, the next meaningful support is at 5,012 points, which is likely to be a strong support.
Globally the markets are likely to consolidate with a negative bias as there are no positive triggers and current situation in Middle East and North Africa continue to scare investors. However, this week is very important from the economic indicator’s perspective. Key jobs pointers in the US, including ADP employment report on Wednesday, weekly jobless claims on Thursday and non-farm payrolls on Friday would be watched closely for cues as recent monthly payroll reports have been a mixed bag, with fewer jobs being added than anticipated, but the unemployment rate declined. Also, comments from Bernanke will be parsed for clues about when the Federal Reserve’s quantitative easing programme will end and whether a third round is likely.
The PMI (Purchasing Managers Index) for February of China and India, scheduled for release on Tuesday, will also be important indicators for the market.
Among individual stocks, this week, Ambuja Cements Ltd, LIC Housing Finance Ltd and Jain Irrigation Systems Ltd look good on the charts. Ambuja Cements at its previous close of Rs124.35 has a target of Rs129 and a stop loss of Rs119. LIC Housing Finance, at its last close of Rs184.70, has a target of Rs192 and a stop loss of Rs177, while Jain Irrigation Systems, at its last close of Rs197.25, has a target of Rs210 and a stop loss of Rs184.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments are welcome at ticker@livemint.com
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First Published: Sun, Feb 27 2011. 07 48 PM IST