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Major downswing unlikely

Major downswing unlikely
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First Published: Sun, Sep 11 2011. 10 14 PM IST

Shyamal Banerjee/ Mint
Shyamal Banerjee/ Mint
Updated: Sun, Sep 11 2011. 10 14 PM IST
Leaving behind the underperformer’s tag, Indian bourses outshone the US and Europe as well as emerging economies by posting moderate gains over the past week. This does not mean the Indian exchanges can defy the trend on the global bourses or remain insulated from global woes. But it shows that a major downswing from current levels is not likely. Broadly speaking, the markets should see consolidation for two more weeks before any breakout.
Globally, worries over the US economy and the European debt crisis continued to linger. On Friday, the optimism over German support to the euro zone debt crisis faded. Sentiments were also hurt by rumours that Greece will default by the weekend. Greece later called the rumour market speculation designed to hurt the euro. In the US, President Barack Obama’s plan to prop up the economy by announcing a $447 billion stimulus proposal failed to cheer the markets as investors remained unconvinced about its smooth sailing. Another dampener for the US and global markets was Federal Reserve chairman Ben Bernanke’s speech, which had little new to offer compared with his speech at Jackson Hole some days earlier. Bernanke said the central bank would spare no effort to boost the economy but gave no details of the steps policymakers might take. This raised doubts about the much talked about third round of quantitative easing (QE3), which was expected to come in the forthcoming meeting of the Federal Reserve.
Shyamal Banerjee/ Mint
Back home, last week did not have much on the agenda. While monthly auto sales were down by around 10% over the previous year, monthly exports rose over the previous year. The undertone on the bourses is likely to remain subdued ahead of the Reserve Bank of India’s (RBI) mid-quarter monetary policy review on 16 September. Since RBI is broadly expected to raise the repo rate by another 25 basis points (bps), given the high rates of inflation, this is likely to weigh on market sentiments. One basis point is 0.01%. However, if RBI skips the rate hike in this meeting, it will be a big boost for the markets; and bank, real estate and autos will be back in the limelight. The monthly index of industrial production will also be watched closely on Monday, while the monthly wholesale price index data (inflation) will be released on Wednesday. Both these data may have a significant impact on RBI’s meeting.
Key US economic indicators, due this week, include retail sales along with the consumer price and producer price indices for August. Also expected are regional manufacturing surveys by the Philadelphia Federal Reserve Bank and by the New York Federal Reserve Bank, both of which showed contractions in factory activity last month. Developments in the euro zone will also weigh on market sentiments. From a technical perspective, the immediate outlook of the markets has turned cautious with a downward bias. The technical studies suggest consolidation on the bourses with some downward bias initially, but the markets could rebound later.
On Monday, the Nifty could resume lower with moderate support expected around 5,012 points. This level may get breached on open only due to weak global sentiments. The next meaningful support will come between 4,962 and 4,935 points. If this level falls, the next support will slip to 4,887, which is again an important support level. However, the Nifty will have a very strong support at 4,791 points. The chances of the Nifty falling to the first major support of 4,935-4,962 is high, while the probability of the index falling below the next support level, at 4,887, is quite low.
On the upside, the Nifty is likely to see resistance at 5,104. This is an important level and, if crossed, will be the first sign of positive sentiments returning. The next resistance is placed at 5,187, which will be a trend-decider. Any close above this will boost northward momentum as the Nifty could target 5,324 next.
Among individual stocks this week, Wockhardt Ltd, HDFC Ltd and Dr. Reddy’s Laboratories Ltd look good on charts. Wockhardt, at its close of Rs 393.90, has a target of Rs 403, and a stop-loss of Rs 381. HDFC, at its close of Rs 660.65, has a target of Rs 672, and a stop-loss of Rs 644. Dr. Reddy’s, at its last close of Rs 1,467.80, has a target of Rs 1,499, and a stop-loss of Rs 1,422.
From my last week’s recommendations, Bharat Petroleum Corp. Ltd triggered its stop-loss, while Shree Renuka Sugars Ltd and Titan Industries Ltd overshot targets.
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First Published: Sun, Sep 11 2011. 10 14 PM IST