After China, it was India’s turn to tighten its monetary policy by raising the repo and reverse repo rates by 0.25% each. The Reserve Bank of India (RBI) raised the repo rate, the rate at which it lends to banks, to 5%, and the reverse repo rate, at which it absorbs funds from the system, to 3.5%, with immediate effect.
The timing was a surprise, though the markets had discounted an interest rates hike of 50 basis points at RBI’s policy review meeting on 20 April.
The rate hikes, announced after the markets closed on Friday, came at the end of a week in which the global markets performed strongly for the most part. US housing, industrial production and jobs data were all better than estimates and pointed to the onset of some stability in the world’s biggest economy. Markets in the US, Europe, China, Japan, Hong Kong, Russia and India posted gains over the week despite renewed concerns over Greece’s debt problems.
A decision on the long-awaited US healthcare reforms Bill this week could clear uncertainties and cheer American investors. However, after a long streak of weekly gains, apart from a rise in eight out of nine trading sessions, it could well be a time for some consolidation and a technical correction in the US markets.
Also Read | Previous columns by Vipul Verma
Important US economic data due for release this week includes the February existing home sales, February new home sales, the government’s final reading on the fourth-quarter gross domestic product and the final word on the March consumer sentiment.
Investors will also do well to keep a close watch on the dollar index. If the index continues to show strength in the US dollar against a basket of currencies, the equity markets would likely slide on the assumption that inflows into riskier emerging market assets will be restricted.
Back home, no major economic data is due this week. Trading is set to resume on a weak note on Monday after RBI’s rate action on Friday. However, the markets are likely to stabilize after a fall of nearly 1.5-1.75% and then turn sideways. Any fall beyond 2% could be a good trading opportunity. Long-term investors would find it better to take a wait-and-watch stance as this week forebodes volatility due to the expiry of derivative contracts for this month on 25 March. Volatility is likely to be higher because 24 March is a public holiday.
Technically the markets are in an overbought zone and may shed some weight before resuming their rise.
Graphic by Paras Jain; Photo by Harikrishna Katragadda/Mint
In terms of the Bombay Stock Exchange (BSE) Sensitive Index (Sensex), the first support is likely to come at 17,205 points. If the market falls below this level, a kneejerk reaction could take the Sensex to 17,021. In normal circumstances, this level should hold. But if the level is breached on good trading volumes, the undertone would turn bearish. On its way up, the first resistance for the Sensex is at 17,649 points, followed by 17,773.
In terms of the S&P CNX Nifty, the first major support is expected around 5,156 points. If this level is breached, the Nifty would find support at 5,091, which under normal circumstances should hold. If it doesn’t hold, the undertone would turn negative. On the upside, the first resistance is likely to come up at 5,298 points, which, if overcome, would trigger the next leg of the market rally.
Among individual stocks this week, Sun Pharmaceutical Industries Ltd, Bajaj Hindustan Ltd and Alstom Projects India Ltd look good on the charts. Sun Pharma, at its last close of Rs1,698.10, has a target of Rs1,722 and a stop-loss of Rs1,661. Bajaj Hindustan, at its last close of Rs146.25, has a target of Rs153 and a stop-loss of Rs139. Alstom Projects, at its last close of Rs590.80, has a target of Rs604 and a stop-loss of Rs572.
From the previous week’s recommendations, all the stocks hit their targets comfortably.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org