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Euro zone turmoil clouds horizon

Euro zone turmoil clouds horizon
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First Published: Sun, Sep 25 2011. 09 18 PM IST

Updated: Sun, Sep 25 2011. 09 18 PM IST
The bourses continued on a roller coaster in volatile trading as the crisis in the euro zone and signs of weakness in the US economy sent shock waves across the globe. Markets fell sharply as fears of a recession led to investors deserting risky assets. A close examination of the chronology of economic indicators or developments, however, does not warrant such a panic as fundamentally or economically not much has changed, except for the threat perception about recession. The Indian bourses fell on global cues and registered losses across all sectors, except technology stocks, which gained on a weak rupee. Currency markets saw a higher volatility than the stock markets and led to a sharp fall in commodity prices, which added to the woes of the stock markets.
The outlook for stock markets remains clouded by concerns over turmoil in the euro zone. Unless something concrete emerges from that area, sentiments are likely to remain depressed. Indications from the US are not positive as economic indicators are still pointing down and investors are not tying many hopes with the earnings season scheduled to start early next month.
Analysts have already downgraded the growth of S&P 500 firms from 17% to 13.7%. Though much of this is already discounted, pressure on earnings is likely to weigh on sentiments. Markets will also keep an eagle’s eye on economic indicators, including reports on housing, factory activity, consumer spending and the broader economy. Data on new home sales in August are due on Monday, and the consumer confidence index on Tuesday.
Durable goods orders for August will be released on Wednesday; on Thursday, a final reading on the growth of second quarter gross domestic product will be released. On Friday, August personal income and spending data and the final reading on September consumer sentiment will be released.
Back home, markets will continue to take cues from the global bourses and are likely to consolidate with a downward bias. India’s infrastructure growth for August, fiscal deficit data for the April-August period, external debt and trade deficit for the the second quarter will be released on Friday. Though this data may not have much impact on the market, they can throw light on the state of the Indian economy.
There may be some stocks-specific movement this week ahead of the earnings season, scheduled to start in the second week of October. Indian markets may see some recovery from the middle of the week on short covering due to expiry of derivative contracts for September, scheduled on 29 September.
Broadly, I am expecting consolidation, but volatility will continue on bourses. Technically, the Nifty is likely to see its first resistance coming at 4,933, though this does not hold much relevance as it is a moderate resistance and may not offer hurdles to the spurt in the Nifty, which could be seen on bargain hunting. If this level goes, the Nifty will come across its next resistance at 5,018, which may offer hurdles to the northward momentum but may not be strong enough to arrest the momentum. Shortly after this level, the Nifty will come across a strong resistance level at 5,061, which is likely to hold the key for northward momentum on bourses. If the Nifty settles above this with good volumes, it will mean further gains as sentiments would get a positive push, technically. The next resistance level will come at 5,102—moderate resistance followed by a trend-deciding resistance at 5,168 points.
On the way down, the Nifty is likely to test its first support at 4,802, which is a strong support. If this goes, it would be a bearish signal as the Nifty will find its next support at 4,712, which will be a short-term trend deciding support level. Any fall beyond this could mean shifting of the base of the Nifty in the short term to 4,524 points.
Among individual stocks, Dish TV India Ltd, JSW Steel Ltd and ACC Ltd look good on the charts. Dish TV, at its previous close of Rs 76.70, has a target of Rs 80, and a stop-loss of Rs 72. JSW Steel, at its last close of Rs 632.55, has a target of Rs 646, and a stop-loss of Rs 614, while ACC, at its last close of Rs 1,069.25, has a target of Rs 1,088, and a stop-loss of Rs 1,034.
From my previous week’s recommendations, Orchid Chemicals and Pharmaceuticals Ltd missed its target by a small margin, while Yes Bank Ltd and United Phosphorus Ltd met their targets easily.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Sun, Sep 25 2011. 09 18 PM IST