Indian equities fell for the second week in a row on profit selling by domestic funds and investors at higher levels. Although foreign funds continued to remain big buyers through the week, some caution set in ahead of the start of the earnings season. Economic indicators provided no encouragement; industrial output grew just 5.6% in August, sharply lower than the revised growth rate of 15.2% in July and 10.6% in the same month a year earlier. On Friday, higher-than-expected monthly inflation data raised concerns of another interest rate hike by the Reserve Bank of India in its monetary policy review next month.
Globally, stock market movements revolved around talk of monetary easing by the US Federal Reserve. Fed chief Ben Bernanke’s statement on Friday that current economic conditions warranted a further easing made more stimulus measures in the US a virtual certainty.
From the economic perspective, last week was a mixed bag with the job scenario in the US remaining poor and some comfort being provided by retail sales numbers, and manufacturing data from New York State which showed output increasing in October. Earlier in the week, China’s international trade data also spurred optimism about the Chinese economy. Chinese stock markets responded by remaining the world’s best performers in the week.
Graphic: Shyamal Banerjee/Mint
This week, Indian markets are likely to be range-bound with investor sentiment cautious ahead of key earnings.
The initial public offering of Coal India, which plans to raise up to $3.5 billion in the country’s biggest share sale, may also cast a shadow by drying up liquidity. If the IPO succeeds in attracting investors, it will likely trigger gains.
From the economic standpoint, the markets will keep an eye out for US industrial output numbers in September that will be released on Monday. Also on Monday, the NAHB housing index will be released, followed by data related to building permits and housing starts in September, and would be watched closely for cues on the US housing sector. On Wednesday, the Federal Reserve would release the Beige Book Survey of US economic conditions, which will throw light on the strength of the US economy. Chinese data on third-quarter gross domestic product and industrial output in September will also be crucial; any further signs of a pick-up in China’s economic growth will be greeted by stock market gains in China and overseas.
Technically, the markets are now looking weak although any big fall is unlikely as lower levels are likely to attract investor support on optimism about the corporate earnings season. A falling Nifty is likely to attract its first support at 6,034 points. If this level fails to hold, the next support is likely at 5,963 points, which should hold under normal circumstance. If heavy selling topples this level and the Nifty settles below it, the Nifty may slip to 5,891. On the upside, the first resistance for the Nifty is at 6.141 points. Unless the Nifty closes above this level, the undertone on the markets would remain cautious with a negative bias. A close above this level would improve sentiment and push the resistance up to 6,222 points. This is likely to be strong resistance and a close above this level would mean new highs in the coming sessions.
Among individual stocks this week, HDIL Ltd, IDBI Bank Ltd and Reliance Infrastructure Ltd look good on the charts. HDIL, at its last close of Rs271.45, has a target of Rs283 and a stop-loss of Rs257. IDBI, at its last close of Rs160.05, has a target of Rs166 and a stop-loss of Rs153 while Reliance Infrastructure, at its last close of Rs1,065.65, has a target of Rs1,086 and a stop-loss of Rs1041.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org