Weak global cues and worries over domestic economic indicators pulled down the Indian markets as funds and investors sold heavily fearing a further fall. I had mentioned in my previous columns that the trend on the bourses would remain positive as long as the Nifty index on the National Stock Exchange remains above 5,145 points. However, a close below 5,145 would be bad for the markets. The Nifty tested the support at 5,145 several times last week and, finally, broke this crucial support, and this marked the beginning of the sell-off.
The fall was, thus, technically justified, and was also aided by weak global cues. Although there was nothing new in the European crisis, rising bond yields was a good enough reason to keep the equity markets suppressed. European bourses fell over 4% on an average, while US bourses ended down about 3-4%. India was the worst performer among BRICS nations, falling about 5%, whereas China fell 2.6%, Russia 1.64%, Brazil 1.03% and South Africa by 1.6%.
The market seems to have formed the bottom in the immediate term and is likely to post gains in the beginning of the week. However, these initial gains will not mean the markets are out of the woods, unless they cross crucial resistance levels mentioned later in this column. It would be interesting to see the opening on Monday. Going by a key technical study, if the Nifty opens above 5,013 by any chance, this would mean a strong rally. However, a gap-up opening of up to 30-40 points would mean a moderate pull back.
Also Read | Vipul Verma’s earlier columns
On its way up, the Nifty has a strong resistance at 5,013, which would be crucial to watch. If the Nifty settles above this level on closing basis, this would be the first positive signal for the Nifty. The next important resistance would then come at 5,086, which is likely to be a moderate resistance level. However, the next resistance at 5,145 will be the most crucial level to watch as a close above this will mean end of negative sentiments and the next target for the Nifty would be at 5,221 points.
On the down side, the first support for the falling Nifty would come at 4,831, which is likely to be a crucial support. A close below this would mean further weakness and the base for the Nifty would then shift to 4,726 points. However before this level, the Nifty would briefly find support at 4,791 points as well.
Fundamentally also, the markets are looking attractive at current valuations and offer good opportunity. From the economic indicator’s perspective, there is not much on the cards this week on the domestic front and markets would continue to take cues from the global bourses and, especially, from the crisis-hit euro zone. Europe’s economic calendar has some important indicators due this week, which include consumer confidence index for November in France on 25 November and Markit/CDAF manufacturing flash purchasing managers’ index (PMI) for November on 23 November. In Germany, quarterly gross domestic product (GDP) data due on 24 November would be watched closely, while on 23 November Markit/BME Mfg Flash PMI would be an important indicator to watch.
The US has a busy economic calendar with indicators, including the national activity index, existing home sales due on Monday, third quarter preliminary GDP estimates on Tuesday, durable goods orders and jobless initial claims and personal income and consumption index on Wednesday. So far, the US economic indicators have spread optimism. Further signs of strength in the US economy will be a positive for global stock markets as well.
The markets will also watch out for the 12-member super committee, which has until midnight on Wednesday to strike a deal involving tax increases and spending cuts to rein in federal spending. If the committee comes up with a workable deficit-reduction plan, it could trigger a rally on US and global bourses. Also weighing on sentiments early this week would be the results of the Spanish elections on Sunday, in which the opposition party, which is supporting austerity measures, is a favourite to win.
Back home, among individual stocks, this week Oil and Natural Gas Corp. Ltd (ONGC) Yes Bank Ltd and ICICI Bank Ltd look good on the charts. ONGC, at its last close of Rs 259.80, has a target of Rs 268, and a stop-loss of Rs 247. Yes Bank, at its last close of Rs 270.40, has a target of Rs 277, and a stop-loss of Rs 261; ICICI Bank, at its last close of Rs 770.10, has a target of Rs 787, and a stop-loss of Rs 753.
From my previous week’s recommendations, Bajaj Auto Ltd met its target, while ACC Ltd and Kotak Mahindra Bank Ltd missed their targets by a narrow margin and are still a valid recommendation for this week.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at ticker@ livemint.com