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Markets look ahead to monetary policy

Markets look ahead to monetary policy
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First Published: Sun, Jul 26 2009. 09 34 PM IST

Updated: Sun, Jul 26 2009. 09 34 PM IST
Equities and key indices ended higher for the second consecutive week. Foreign fund buying, buoyant global markets, better-than-expected first quarter earnings and economic data contributed to the positive sentiment.
The highlight of the last week was the infrastructure output data as the index for six infrastructure industries— crude oil, refining, coal, electricity, cement and steel—together grew at an annual rate of 6.5% in June, the fastest pace in 18 months and quicker than the previous month’s rise of 2.8%. Moreover, the easy trend on the Wholesale Price Index, which fell for the sixth straight week, bolstered expectations that the Reserve Bank of India (RBI) will hold rates steady at this week’s policy review.
The situation on the monsoon is still not clear. Low rains in Bihar, the country’s leading corn producer, and Uttar Pradesh, which normally produces at least half of India’s sugar cane, would surely affect agriculture.
Globally, though, the earnings were a mixed bag, but positive economic data from the US, Europe, China and Japan raised hopes for the world economy in the second half of the current fiscal year.
The earnings blitz will continue this week in global markets, with about one-third of the S&P 500 companies expected to report results. Among the key US economic indicators, investors will get the first look at second-quarter gross domestic product growth on Friday. New home sales, consumer confidence and durable goods orders would also be watched very closely for more cues on the US economy.
Back home, markets would eagerly wait for Tuesday as RBI holds a quarterly review of monetary policy. It is widely expected that RBI will hold rates steady as growth concerns override inflationary pressures. The markets would also closely watch fiscal deficit for June on Friday, inflation data, foreign exchange reserves, bank loan growth and M3 money supply.
The analysis is partly influenced by the quarterly results of Reliance Industries Ltd (RIL), which was released after market hours on Friday. Technically, the markets were looking all set to rise on Monday, but now if RIL’s results are factored in, there could be some fall.
If on Monday the S&P CNX Nifty slips below 4,490 points with good volumes, the chances of a short-term technical correction will brighten. On its way down, the Nifty would test its next support at 4,452 points, which is a moderate support level. If it falls further, then there would be a strong support at 4,378 points. But if the selling pressure trips this support also, then the market would bottom out at 4,181.
If the RIL factor does not weigh heavily, then the Nifty would see its first resistance at 4,609 points. Since this a moderate resistance level, if it goes, then the next resistance level would come up at 4,697 points, which is a strong resistance level. If the northward momentum crushes this resistance level, then the Nifty would aim to test 4,768 and 4,840 points.
In terms of the Sensex, the first resistance is expected to come at 15,530 points, followed by 15,647 points. This would be a crucial resistance level and if it goes, then 16,000 points would be a reality soon. This is not a critical technical resistance and would thus not affect the pace of the northward momentum as the Sensex would aim to test resistance at 16,312 points.
On its way down, the Sensex has its first support at 15,167 points, followed by 15,010, 14,792 and 14,588 points.
Among individual stocks, this week, Bank of India, Reliance Infrastructure Ltd and Welspun Gujarat Stahl Rohren Ltd look good on the charts. Bank of India at its last close of Rs348.35 has a target of Rs364 and a stop-loss of Rs332. Reliance Infra at its last close of Rs1,168.80 has a target of Rs1,202 and a stop-loss of Rs1,128. Welspun Gujarat at its last close of Rs213.60 has a target of Rs227 and a stop-loss of Rs197.
From the previous week’s recommendations, Yes Bank Ltd, Welspun Gujarat and Alstom Projects India Ltd hit their targets easily.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Sun, Jul 26 2009. 09 34 PM IST