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Markets in consolidation mode

Markets in consolidation mode
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First Published: Sun, Jun 12 2011. 04 09 PM IST

Updated: Sat, Jul 02 2011. 01 37 PM IST
In my last column I had asked readers to watch political moves before taking a call on investment in the stock market. I was wrong. My perception of risk was associated with the gravity of issues, which had moved every citizen in some way or the other. While writing the column last week, the atmosphere in the country was revolutionary. I did not imagine, even in my wildest thoughts, that the key issues—corruption and black money—would get lost in a matter of hours and cheap politics will take centre stage.
Reconciling themselves with reality, Indian markets played down the threat perception and moved in a tight range. Since the global trend was weak, and domestic triggers were missing, sporadic bouts of selective buying lacked conviction, resulting in weak sentiments on the bourses.
Although industrial output data released on Friday was on expected lines, it added to the woes of the market as it reconfirmed that tight monetary policy was weighing heavily on India’s growth prospects. Global economic news was not too good either. Economic indicators from the US continued to show weakness. Moreover, the rally in the dollar over the weekend—following a sharp fall in euro after worries over Greece’s debt resurfaced—also weighed on equities. The fall in crude prices following Saudi Arabia’s offer of more oil to Asian customers put additional pressure on weak equities.
Sentiments were also hit by China’s smaller-than-expected trade surplus in May of $13.1 billion because of soaring imports and weaker global demand growth, giving mixed signals about how the economy fared when some of its best export customers faltered. So, overall, worries continued to mount over global economic recovery, with talk of a double-dip recession resurfacing.
As I mentioned in my last column, Indian markets are in a consolidation phase and, unless they break out of this range, the trend on the bourses would continue to remain elusive. The upper end of the band is 5,612 and the lower end 5,248 points for the Nifty. Though this range is big, it’s the market’s correct analysis. You must have noticed that the Nifty went close to the upper limit of the band twice but could not conquer this level as positive triggers were missing. The situation remains the same as the market is clearly directionless.
For this week, I think the undertone on the bourses would continue to remain cautious with downward bias, as markets would eagerly wait for the Reserve Bank of India’s (RBI) policy review meeting on 16 June. It is by and large expected that RBI would hike rates by 0.25 percentage point, and has been discounted in the market as well. Apart from the RBI meeting, there is not much on the cards next week.
Globally, the week is busy with key indicators—including the Producer Price Index, the Consumer Price Index, May retail sales, manufacturing surveys for New York and Philadelphia, and the index of leading indicators of economic activity—due in the US. Since these indicators are forecast to mostly show a struggling economy, markets would be lacking triggers this week. Thus, the downward pressure could remain on equities.
Technically, the trend on Indian bourses is likely to remain range bound. On its way down, the Nifty is likely to find its first support at 5,422, which is likely to be a good support level. However, if it falls with good volumes, then the outlook would turn weak and the next support will slip to 5,364, which will be a moderate support. This level will not be able to withstand volume-led selling; and as selling intensifies, the Nifty will have a small stopover at 5,322 points. Since this is a moderate level, strong support is likely to come at or before 5,248 points. Technical studies suggest the Nifty would not break this level.
On the upside, the Nifty has resistance at 5,542, which is likely to be a strong resistance level. If this level goes, then the outlook would turn optimistic (and not positive). The next resistance would come at 5,574, which is moderate resistance. The next resistance at 5,612 would be crucial and would decide the trend on the bourses.
Among individual stocks, Alstom Projects India Ltd (APIL), Axis Bank Ltd and Wipro Ltd look good on charts. APIL, at its last close of Rs567.75, has a target of Rs575, and a stop-loss of Rs552. Axis Bank Ltd, at its last close of Rs1235.15, has a target of Rs1,263, and a stop-loss of Rs1,211, while Wipro, at its last close of Rs437.45, has a target of Rs445, and a stop-loss of Rs423.
Illustration by Shyamal Banerjee/Mint
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, Jun 12 2011. 04 09 PM IST