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Markets may consolidate

Markets may consolidate
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First Published: Sun, Apr 03 2011. 09 59 PM IST
The Sensex index on the Bombay Stock Exchange zoomed in eight straight sessions of gains, rallying 1,783 points from a low of 17,792 points touched on 21 March to a high of 19,575 points on 31 March, before finally settling at 19,420.39 points on Friday, netting a weekly gain of 3.2%.
Compared with global peers, the performance of Indian bourses was among the top three, with Germany’s DAX clocking 3.36% gains, while South Korea’s Kospi netted a 3.26% rise over the previous week. China was the only major stock market that fell during the week.
India’s performance was backed by fresh flow of foreign funds in local equities. Moreover, signs of positive momentum in economic growth as suggested by infrastructure output, monthly auto sales and cement shipments, and positive reading on HSBC Markit manufacturing PMI (Purchasing Managers’ Index) data for March, cemented the view that the Indian growth story is intact and growth targets would be met.
Global economic indicators were also good with Friday’s US non-farm payroll data raising the bar of economic optimism, showing that US employment grew firmly for a second straight month in March and the jobless rate hit a two-year low of 8.8%. Though the unemployment rate still remain high and uncomfortable, the falling trend in unemployment was a big comfort to the US economy, which pushed US equities to a new yearly high.
News from Japan and the Middle East, however, was not encouraging. International crude prices remained a concern, with the Nymex crude and Brent crude touching a new two-and-a-half-year high.
Despite positive sentiments prevailing on bourses, markets now seem to be heading for some consolidation and correction. Since the underlying sentiments are still bullish, there would be no big downside risk, but in the next two-three days markets are likely to correct a bit before taking their next course. Also there would be some caution ahead of the beginning of earnings season, which will start later next week only with Infosys Technologies Ltd numbers. But since the undertone remains firm, markets are likely to remain cautiously positive after initial consolidation expectation in the next two-three days.
Globally, some key economic pointers, including employment trends for March on Monday, ISM N-Mfg PMI for March on Tuesday, midwest manufacturing for February on Wednesday, weekly jobless claims on Thursday would be watched in the US. Weekly jobless data would be more closely watched to ensure that the spurt in hiring suggested by the non-farm monthly data is maintained.
Technically, the markets are in positive momentum, but may consolidate and correct in the next three sessions before resuming their next course. More importantly, the volume would hold the key this week. If the consolidation led by mild correction comes with good volumes, then the index would see some fall. However, if the volumes fail to pick up, there would be range-bound movement.
On its way down, the Nifty index on the National Stock Exchange would see its first support at 5,767 points, which is likely to be a good support. This level would absorb low volume selling and would provide good ground for the falling Nifty. However, in case volume picks up on downside, then this level would weaken and push the nest support to 5,702, which is also the 200-day simple moving average. In normal circumstances, the Nifty should rebound from this level. In a worst case scenario, the Nifty would have a very strong support at 5,610.
On its way up, the Nifty will see the first resistance at 5,876, which is a minor resistance. The next resistance at 5,942 would be a good resistance, but will not pose a threat to the upward momentum. However, the resistance at 6,008 would be strong and need close monitoring.
Among individual stocks this week, Federal Bank Ltd, MphasiS Ltd and Shree Renuka Sugars Ltd look good on the charts. Federal Bank at its last close of Rs 420.30 has a target of Rs 433 and a stop-loss of Rs 404. MphasiS at its last close of Rs 420.15 has a target of Rs 436 and a stop-loss of Rs 407, while Shree Renuka Sugars at its last close of Rs 72.75 has a target of Rs 76 and a stop-loss of Rs 68.
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, Apr 03 2011. 09 59 PM IST