Indian markets ended marginally lower last week as a stock rally fizzled out after key indices peaked. Mixed global cues and caution among investors also restricted the momentum amid a renewed debate on valuations, in the absence of fresh economic triggers. Still, persistent buying by foreign funds—which have been net buyers of nearly $11 billion (Rs52,800 crore) of Indian stock so far this year—kept hopes alive of gains this week.
Concerns that central banks around the globe are ready to start withdrawing some of the extraordinary stimulus they have injected into their economies provided the latest dampener for Indian markets. A withdrawal of the accommodative policy stance adopted by central bankers to overcome the downturn in their economies may hit foreign investment flows into Indian stocks.
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The Group of Twenty summit in Pittsburgh, US, vowed to keep emergency economic support in place until a recovery is secured, likely setting at rest concerns of any immediate withdrawal of stimulus measures. Globally, stock markets remained weak, with China leading the losers by falling about 4.2% last week. Other major overseas stock markets, including those in Europe, Hong Kong, Japan and South Korea, also ended lower. Indian markets performed relatively better, but their northward momentum has been retarded.
Indian markets are headed for lacklustre trading in a holiday-shortened week; the markets will be closed on Monday and Friday. But, unless global bourses see some upheaval, there will not likely be major selling pressure, with investors focused on quarterly results. Since advance tax payments for this quarter have been surprisingly good, expectations of corporate results are likely to keep market sentiment positive.
The week will see the release of important economic data, including the fiscal deficit for August, first-quarter trade deficit and balance of payments. Thursday will see the release of the ABN Amro Manufacturing PMI (purchasing managers’ index) for September that will be closely watched. The index has signalled a muted outlook for the past two months, and a turnaround would shore up investor morale. Any disappointment on this count could trigger some profit selling. Industry data such as September auto sales will also be released on Thursday, and these figure will be used to gauge the prospects of the auto sector, which has so far been an outperformer in Indian manufacturing.
Globally, investors would bank heavily on the September non-farm payrolls data due out in the US on Friday and the final reading of the second quarter gross domestic product, due on Wednesday, to judge the strength of the recovery in the world’s biggest economy.
The debate over the pace of the global economic recovery will likely continue as analysts have different perspectives on the issue. But these two data are very important indicators of the short-term economic health of the US and for the direction of stock markets. The US unemployment rate, at 9.7%, is a major concern for investors because of its impact on the economy and, in particular, consumer spending. The data is expected to show a loss of 180,000 non-farm jobs, which would be an improvement from a decline of 216,000 jobs in August. But the unemployment rate is seen rising to 9.8%.
Technically, the Indian markets aren’t looking too weak and if the global trend remains neutral, indices may edge up initially. Technically, the Sensex on its way up would come across its first resistance at 16,821 points, which is a very crucial level. If this level is breached on good volumes, or the Sensex closes above this level, there would be further gains, with the next resistance coming at 17,011 points. This resistance is likely to be strong and threaten a rising Sensex. If the Sensex crosses this level, it would meet its next resistance at 17,132. A close above this level would put the market firmly in bullish territory, leaving the Sensex poised for more gains; the next resistance level would be 17,548.
On its way down, the Sensex would test its first support at 16,615 points. Any fall below this level on good volumes would take the Sensex down to 16,481. This would be a strong support, but if this level goes, the mood on the bourses would turn negative, leaving the index poised for more declines. The Sensex would then find support around 16,121, which is likely to be the week’s bottom.
In terms of the S&P CNX Nifty, the index is likely to test its first resistance at 4,996 points, which is likely to be a strong level; a comfortable close above this level would trigger a gain of 58 points as the Nifty faces its next resistance at 5,054. This level is likely to be a strong resistance level; a breach of this resistance would mean further gains. The next resistance levels would come at 5,134 and 5,196. On its way down, the first support for Nifty is expected at 4,921, followed by the next at 4,881 points, which is expected to be strong. If this support goes, the index has its next—and strong—support at 4,834 points.
Among individual stocks this week, Axis Bank Ltd, Alstom Projects India Ltd and Bharat Heavy Electricals Ltd (Bhel) look good on the charts. Axis Bank, at its last close of Rs914.80, has a target of Rs931 and stop-loss of Rs897. Alstom Projects, at its last close of Rs556.35, has a target of Rs571 and stop-loss of Rs538. Bhel, at its last close of Rs2,242.65, has a target of Rs2,274 and stop-loss of Rs2,212.
From the previous week’s recommendations, Bhel and Punj Lloyd Ltd missed their targets by a whisker but Hindustan Zinc Ltd met its target easily.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org