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Markets likely to consolidate

Markets likely to consolidate
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First Published: Sun, Aug 14 2011. 08 49 PM IST

Updated: Sun, Aug 14 2011. 08 49 PM IST
Despite the turmoil in the global stock markets, Indian stocks showed a lot of resilience and behaved maturely, proving wrong the old saying that “if the US sneezes, Indian bourses catch a cold”. Though on a comparative basis, the performance of the Indian stock market was neither the best in Asia nor in the developed world as China posted moderate losses of 1.26% over the previous week while, surprisingly, Brazil’s Bovespa ended with a gain of roughly 1%.
Even the trouble-torn US fared better than India by registering a moderate fall of around 1.5% as the Indian bourses posted losses of around 2.7%. Nevertheless, the performance of Indian stocks was far better when compared with South Korea—down 7.74%, Russia—down 7.34% and Hong Kong—down around 6.33% over their previous week’s close. This interpretation is necessary as it calms a lot of market apprehensions about what lies next.
Interestingly, signs of fresh trouble in France went easy with most Asian markets, including India, which shows two things: one, the debt crisis in Europe is not having a direct impact on Asian economies yet. Two: markets are confident that some positive outcome will emerge from the meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel, who are expected to discuss how to make the euro zone work more effectively in dealing with the crisis.
Back home, the industrial output data for June was a total surprise as IIP (index of industrial production) expanded at 8.8%, led by strong capital goods production. This could have been a trigger for Indian stocks as it suggests good resilience by Indian industry to global pressures and domestic monetary tightening measure, which is being feared most by the Indian markets.
Therefore, such strong numbers also raised fears that the Reserve Bank of India may continue with its rate hikes in its forthcoming meeting in September to fight the stubbornly-high inflation. Now, with the earnings season nearing its end, and near-normal monsoons, markets are more likely to consolidate as valuations are looking reasonably good.
Globally, the markets are in consolidation phase as most of the negative triggers are now a reality, and though they might not be fully discounted, at least, their intensity is now fully discounted and are, thus, not likely to cause any major damage. Now, with sentiments remaining negative to the core, markets would look to global economic indicators with a pinch of optimism. So far, markets would hunt down signs of recession in the economic indicators; now, because of factoring of negative concerns, the approach would be to look at positive aspects in these indicators, which is the key to consolidation on bourses.
In the US, after the better-than-expected retail sales numbers reported on Friday, this week, markets would look for housing and manufacturing reports, including the New York and Philadelphia Federal Reserve regional manufacturing surveys and existing home sales. The manufacturing report would assume a lot of importance after disappointing numbers last month.
Back home, the markets are currently showing weakness on charts, however, there is a silver lining. The Nifty, on its way up, has a strong resistance at 5,194, which would be like a trend decider. If the Nifty on its way up breaks this resistance, there would be a short and sharp relief rally on bourses, which could take it to 5,336 points. However, before reaching this level, the Nifty would come across another important resistance level at 5,128, which would also be watched very closely. On its way down, the Nifty has its first support at 5,052, which is a moderate support only and may give way to volume-led selling. If the Nifty breaches this level, there would a meaningful support at 4,945, which might offer some good support.
However, there would be a good support at 4,881 points. Given the broader perspective, I think markets will have a tendency towards recovery and I would suggest readers to keep an eagle eye at 5,194 points on the Nifty.
Among individual stocks, this week ABB Ltd, JSW Steel Ltd and ICICI Bank Ltd look good on the charts. ABB, at its last close of Rs795.25, has a target of Rs812, and a stop-loss of Rs776, JSW Steel, at its last close of Rs655.95, has a target of Rs670, and a stop-loss of Rs636, while ICICI Bank, at its last close of Rs939.95, has a target of Rs962, and a stop-loss of Rs913.
From my previous week’s recommendations HPCL Ltd missed its target by a whisker, while ICICI Bank and Infosys Ltd met their targets easily.
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, Aug 14 2011. 08 49 PM IST