Despite all odds, the Indian equity markets last week posted a marginal gain over the earlier week on sporadic bouts of buying by investors, though broader sentiments continued to remain cautious on concerns over inflation and high interest rates. The monthly industrial output data was a pleasant surprise as it surpassed expectations by a wide margin. However, for sagging stock market sentiments, it raised concerns about further tightening by the Reserve Bank of India rather than raising the bar of optimism about the growth prospects of the Indian economy.
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The flash crash seen last week in commodities, including crude oil, gold, silver, sugar and coffee, continued to weigh on market sentiments as there was a general perception that funds are exiting risky assets and this could extend to equities also down the line.
Moreover, continued trouble in the euro zone and a roller-coaster ride in the value of the euro are also key concerns for global stock markets.
On the positive side, a string of better economic indicators from across the globe elevate the case of equities as a good investment option despite concerns over inflation, high rates of interest and falling commodity prices. Last week, US economic data was broadly in line with expectation. Chinese and Indian data continued to spur economic optimism with their key economic indicators.
The surprise pack last week was the powerful performances by the German and French economies propelling growth in the euro zone well above forecasts in the first quarter, while also highlighting the yawning gap between the bloc’s strong and weak countries. The 17-nation currency area expanded by 0.8% in the first three months of the year, fuelled by a startling 1.5% GDP growth in Germany, while the French economy grew 1.0%, driven in part by consumer demand. So overall, last week ended on cautious notes with downward bias for equities.
The trend on global bourses is now looking weak.
Technical analysis of Dow Jones is suggesting its weakness will continue. On the downside, the Dow is likely to test strong support at 12,520 points, which is likely to be crucial for the Dow as well as global markets. If the Dow breaks below this level, there will be a fall of at least 200 points, which is good enough to trigger a fall on the global bourses. Nifty traders may find this information useful.
Back home, the markets are headed for a weak opening as a fall on US bourses on Friday and a sharp rise in petrol prices are likely to weigh on market sentiments. Expected weak opening on Asian bourses will also be a dampener. Technically, I think the Nifty index on the National Stock Exchange has support in the 5,473-5,442 points band, which will be crucial to watch. If it breaks below this level, there could be further fall, with the next support coming at 5,391, followed by a good support at 5,361.
This support may also not be strong enough to arrest the southward momentum as the next meaningful support is expected at 5,261 with the downside still wide open. On the upside, the Nifty is likely to see first resistance at 5,609, followed by next meaningful resistance only at 5,712. If the Nifty closes above 5,712, the undertone on bourses would turn positive.
Fundamentally this week, the April wholsale-prices data in India would be watched closely for cues on inflation, which is the biggest concern in the country. Apart from this, there is not much on cards as far as the Indian economy is concerned.
However, the US economy has some important indicators due this week, including the publication of two regional manufacturing reports from the New York and Philadelphia regions.
They are important for being a precursor to the bigger national ISM (Institute for Supply Management) surveys published at the start of next month. Monthly housing start data and weekly jobless claims data will also be watched closely for cues on US economy.
Among Indian stocks this week, ACC Ltd, Rolta India Ltd and Bharat Petroleum Corp. Ltd look good on charts. ACC, at its last close of Rs 997.35, has a target of Rs 1,022 and a stop-loss of Rs 966. Rolta India, at its last close of Rs 136.40, has a target of Rs 141 and a stop-loss at Rs 130.
BPCL, at its last close of Rs 660.40, has a target of Rs 675 and a stop-loss at Rs 642.
Since markets are likely to start weak on Monday, investors should consider these stocks in the light of the market situation.
Vipul Verma is chief executive officer, Moneyvistas.com.
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