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Markets are in rally mode

Markets are in rally mode
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First Published: Mon, Apr 25 2011. 01 15 AM IST
Updated: Sat, Jul 02 2011. 01 45 PM IST
Much on expected lines, benchmark Nifty on the National Stock Exchange traded in a band with a positive bias. I had mentioned in my column that the index would trade between 5,712 points on the lower side and 5,929 on the higher side. The Nifty touched a low of 5,694, but broadly traded around 5,710 for some time before bouncing off these levels. Interestingly, the Nifty touched a high of 5,912.81, which was well within the band mentioned in my last week’s column.
The week was dominated by quarterly earnings as markets danced to their tune. First it was Infosys Technologies Ltd’s earnings, which disappointed the markets with earnings and revenue forecast and the last was Reliance Industries Ltd, whose earnings also lagged market expectations. However, markets saw many ups and downs, which was largely due to firm global trend.
The firm global trend, which was by and large due to good corporate earnings saw some potentially serious developments. The most important one was the lowering of credit outlook of the US to negative by Standard and Poor’s (S&P), citing a risk that policymakers may not reach agreement on a plan to slash the huge federal budget deficit. While the credit rating agency maintained the country’s top AAA credit rating, it said authorities have not made clear how they will tackle long-term fiscal pressures.
S&P also said the move signals at least a one-in-three chance that it could cut its long-term rating on the US within two years. Though this may apparently look like a matter not affecting the markets in short term, but going by the history, four AAA-rated countries that S&P has placed on negative outlook between 1989 and this March, three were downgraded within 15 months on average. This statistic looks worrisome especially in view of the fact that the burgeoning fiscal deficit in the US could eventually turn out to be a crisis even bigger than the credit crisis of 2007-08. S&P’s warning is a smoke signal of a brewing major crisis. But I do not want to say anything more than this at this point of time as there is no clarity on this subject and I am confident US policymakers are capable enough to manage the crisis.
Moving on, the global economic scenario remained positive, with economic indicators pointing towards further improvement. Noticeably, last week, the positive housing data in the US improved sentiments and aided buying. Other economic indicators also remained positive and showed improvement. China though surprised with a hike in bank reserve requirement, but it did not dampen sentiments as China is expected to go slow on its monetary tightening plans going forward. European data was also broadly positive and spurred economic optimism.
The Indian markets are likely to move up after consolidating for nearly three weeks as sentiments have turned positive following a forecast of normal monsoon. However, rise in food inflation would keep pressure on markets as it would keep the pressure on interest rates, which are likely to be hiked again in the forthcoming meeting of the Reserve Bank of India. India’s infrastructure output data will also be watched closely on 29 April. This week the derivative contracts for April are due to expire on 28 April, which will add volatility on bourses.
In the US, the earnings season is in full bloom and thus will be watched as Microsoft Corp., PepsiCo Inc. and Coca-Cola, would post earnings. These companies being not much loved as big investment bets could change the game if they can show they justify higher valuations. Apart from earnings, investors will also focus on the first of the Federal Reserve’s press conferences. A press briefing on Wednesday is scheduled to start after the rate-setting Federal Open Market Committee wraps up its two-day meeting. Fed chairman Ben Bernanke intends to give four press briefings a year. This would be the most watched event of the week.
Technically, Indian markets are now in rally mode. Technically, the target for the Nifty this week could be slightly above 6,100, though there could be a good resistance around 6056, which is technically important. The first resistance on its way up is at 5,912, which is the upper end of the trading band and would be watched very carefully. If broken, a rally could begin on bourses.
The next resistance would be at 6,010, which is also important and would see some profit booking. If the resistance is breached, then the next resistance would come at 6,056 followed by a strong resistance at 6,118.
On its way down, the first support for the Nifty is likely to come at 5,810, followed by next support at 5,761. This would be a strong support. A close below this level would make the market nervous and the next support would be at 5,691, which is an important support. Any close below this would mean a bearish trend in the short term.
Among individual stocks, Axis Bank Ltd, Bank of India and Reliance Infrastructure Ltd look good on the charts. Axis Bank at its last close of Rs 1,447.55 has a target of Rs 1,478 and a stop-loss of Rs 1,393. Bank of India at Rs 478.80 has a target of Rs 493 and a stop-loss of Rs 457, while Reliance Infra at its close of Rs 696 has a target of Rs 717 and a stop-loss of Rs 672.
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: Mon, Apr 25 2011. 01 15 AM IST