As I mentioned in my last column that technical factors point to selling pressure starting to build on Thursday, 15 April, despite a strong opening on Thursday, stock markets failed to sustain their momentum and fell on the last two trading days of the week. The decline seems set to be extended to Monday as investors fret over the latest scare from the US.
US investor sentiment was shaken by the Securities and Exchange Commission charging Goldman Sachs with fraud over its handling of a debt product tied to subprime mortgages.
Goldman fell 13% on Friday to $160.89 in its worst one-day drop since January 2009 on volume of more than 100 million shares. US stocks tumbled as investors fretted over the cascading effect of the case against Goldman on other companies.
The CBOE volatility index, Wall Street’s measure of investor fear, surged 16%.
On the earnings front, there were some disappointments. Aluminium maker Alcoa Inc. reported a loss for the fifth straight quarter and Google Inc. and General Electric Co. posted earnings that fell short of market expectations. Bank of America Corp.’s earnings exceeded market expectations, but its shares fell on comments that loan demand was weak.
Weekly jobless claims and consumer sentiments data also came in below Street expectations, raising concerns about the strength of US economic recovery.
Back home, economic data was mixed. The Index of Industrial Production data for February fell short of expectations and was also lower compared to January numbers. Inflation numbers were lower than expected, but a spike in food inflation was a point of concern.
Cues to watch: RBI governor D. Subbarao will make the annual credit policy announcement for 2010-11 on Tuesday. Abhijit Bhatlekar/Mint
This week will be a crucial week for Indian markets. The Reserve Bank of India (RBI) credit policy meeting on Tuesday will throw light on the broad outlook for monetary policy of RBI, whose stance on key interest rates and the cash reserve ratio of commercial banks will be closely watched by the markets.
The markets have already factored in an increase of 25 basis points each or even more in the repo and reverse repo rates and a hike of 50 basis points in the cash reserve ratio—the portion of deposits banks are supposed to keep with the central bank.
The chances of a setback to equity markets being dealt by the monetary policy announcement are low and I think that Monday’s likely sharp decline may not perpetuate into a prolonged downtrend. But this does not mean that Monday would be the bottom; the markets need to consolidate and correct to prepare them for the next move up.
Selective defensive buying would continue, preventing sharp falls. Earnings announcements by companies such as Tata Consultancy Services Ltd and Reliance Industries Ltd will also keep investor sentiment alive.
In terms of the S&P CNX Nifty, the first support level is likely at 5,156 points, followed by 5,091, which should lead to bargain buying. On its way up, 5,378 would be a trend-deciding resistance level for the Nifty.
The Bombay Stock Exchange Sensex has its first important support at 17,357 on its way down, followed by crucial and strong support at 17,191. On its way up, the Sensex will come up against trend-deciding resistance at 17,961.
Among individual stocks, technically Cipla Ltd, Lupin Ltd and Hindustan Unilever Ltd look good on the charts. Cipla, at its last close of Rs330.40, has a target of Rs341 and a stop-loss of Rs318. Lupin, at its last close of Rs1659.75, has a target of Rs1,681 and a stop-loss of Rs1,631. Hindustan Unilever, at its last close of Rs227, has a target of Rs234 and a stop-loss of Rs219.
From my previous week’s recommendations, Lupin hit its target, while Tech Mahindra Ltd and Reliance MediaWorks Ltd failed to do so and still remain valid recommendations.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at email@example.com