As expected, markets fell during the last week on profit-taking by funds and traders, although the fall was limited as they found some support at lower levels. I had mentioned in my last column that the Nifty index on the National Stock Exchange has a moderate support at 5,342 points before a strong support at 5,246. The Nifty briefly touched a low of 5,328.7 on Wednesday, but bounced back to close the day at 5,348.95 points. It fell during the first three days of the week, but recovered on Thursday and Friday. Thursday’s recovery was broadly from short covering due to the expiry of derivative contracts for May. On Friday, the markets saw some bargain hunting, which somehow lacked conviction as global sentiments remained flat.
China lost 5.19% over the week. US markets witnessed minor losses, while Brazil, Russia and South Africa posted handsome gains. Although there was no significantly positive economic data to justify the gains in Brazil and Russia, the way stocks rallied in major emerging economies last week at least allayed fears of big funds moving out of equity as a result of the euro zone crisis.
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The recovery on global bourses towards the end of last week could be attributed to two more factors—weak dollar and recovery in commodity prices. The dollar index touched a high of 76.366 during the week but fell to 74.594 on close, boosting equities and commodities. Gold and silver witnessed strong gains.
But it was a bad week for the US economy. Consumer spending, according to data released last week, fell unexpectedly in the first quarter, raising concerns about the strength of recovery in the US. Economic growth in the first quarter, pegged at 1.8%, was also not encouraging. Thursday’s weekly jobless claims data also did not offer any respite. This week we have more critical updates on the job market in the form of ADP employment report on Wednesday, weekly jobless claims on Thursday and non-farm payroll data on Friday. Any signs of dwindling job prospects in the US could be a downward trigger. The ISM national manufacturing survey for May, monthly auto sales and factory orders for April will also be watched closely for cues on the US economy.
Chinese manufacturing PMI (Purchasing Managers Index) for May will also be watched closely. Buoyant Chinese economic data would be positive for global stock markets. In Europe, too, monthly manufacturing and services PMI data would be watched closely. The news that Russia will lift a grain export ban from 1 July should have a positive impact on the stock markets of emerging economies, including India, as this would bring back the world’s third largest wheat exporter to the world grain markets. This will push wheat prices in international markets lower as Russia and Ukraine are expecting a good harvest season following a massive drought last year. Fall in the prices of grains would be a good sign for economies such as India that are struggling with high levels of food inflation.
This week will be hectic for Indian markets as the results season is winding up and there will be a good number of final results on the first two days. The monthly HSBC Markit Manufacturing PMI data will follow on 1 June. On the same day, the monthly auto sales data will also be watched. These numbers will be important for deciding the trend on Indian bourses.
Technically, the markets are better placed than the last week, and are now showing some strength making a comeback. But a word of caution here. Since the markets are broadly in a range, unless the Nifty settles above 5,613 with good volumes, it would be improper to say markets are bullish. Technical indicators are showing there is some steam left in Nifty’s upward movement, which started on Thursday. But, for confirmation, the Nifty has to cross this level with good volumes and trade. If it does, the outlook would turn bullish, and resistance would shift to 5,712 followed by the next resistance at 5,759 points.
On the downside, the first support would be at 5,419. If this goes, the next level would come at 5,368, followed by 5,312. However, the Nifty is likely to see a major support at 5,248 points, which should be watched closely.
Among individual stocks this week, ACC Ltd, Jindal Steel and Power Ltd and Tech Mahindra Ltd look good on the charts. ACC, at its last close of Rs 997.05, has a target of Rs 1,023, and a stop-loss of Rs 964. Jindal Steel and Power, at its last close of Rs 641.80. has a target of Rs 660, and a stop-loss of Rs 620, while Tech Mahindra, at its last close of Rs 659.20, has a target of Rs 674, and a stop-loss of Rs 641.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org