Volatility ruled the bourses last week as the benchmark indices posted marginal gains after five straight weeks of losses. The undertone still remained cautious as there were lingering worries over taxing of foreign institutional investors (FIIs), though some worries were put to rest after the finance minister iterated that he does not propose to tax participatory note holders. Participatory Notes, or PNs, are derivative products sold by registered FIIs to overseas investors who are not directly registered in India, and it mimics the performance of an underlying Indian security. However, the view that the government intends to tax FIIs did not go well with both FIIs and domestic investors as the market feared an exodus of funds from India. Foreign funds remained net sellers last week, with net sales of around Rs 1,100 crore ($216 million) in the week to Thursday. The worry persists on two provisions announced last month. The first gives India power to retroactively tax indirect transfer of assets, and the second targets tax evaders via proposed general anti-avoidance rules (GAAR). The finance minister’s statement on Friday cleared some doubts, but both FIIs and general investors have been clamouring for more clarity on this issue.
Improved sentiment at close on the bourses could also be attributed to the Reserve Bank of India’s surprise bond purchases, as it injected much-desired liquidity into the sector. RBI bought up to Rs 10,000 crore of bonds through open market operations on Friday.
Global bourses traded broadly lower, but US bourses were the best performers among the major stock markets. US bourses, which closed about a percent higher, saw continued flow of positive economic indicators last week. US consumer spending rose the most in seven months in February, though personal income rose only modestly. Data from Europe and China were not as encouraging, but falling crude oil prices kept hopes alive for improved economic activity.
Market sentiment has turned positive due to lower crude prices and optimism ahead of earnings season. Though the big-ticket earnings season will start from next week, equities could see selective buying by funds and traders. With falling crude prices and moderating inflation, there is scope for RBI to cut interest rates in its meeting later this month. However, the expectations are only moderate.
Amid the optimism, the outlook for the stock market is cautiously positive and more gains are likely in the holiday shortened week. Indian stock markets are in a trading band, and unless the markets close either below 5,142 points now on the downside or 5,467 points on the upside, the trend will continue to remain range-bound volatile. This will remain true this week as well. It is worth mentioning here that the markets went below the lower band of the trading band mentioned last week. But as I had said, the Nifty index on the National Stock Exchange needs to settle below or above the trading range mentioned above for a valid confirmation. The Nifty, though, breached the lower band, which was at 5,167 points, but both the conditions of confirmation—a fall with strong volumes and a close below this level—were not fulfilled.
On its way up, Nifty has resistance at 5,312 points, which is a moderate resistance level. If this level goes, then the next resistance will come at 5,387 points, which is likely to be a meaningful resistance level. It could see some profit-taking around this level. If Nifty closes above this level, then market sentiments will improve. However, caution could still prevail on bourses. The next meaningful resistance for Nifty will then come up at 5,467 points, which also happens to be a critical resistance due to upper end of the trading band. If Nifty settles above this level with good volumes, only then will the trend on bourses turn positive in the short term.
On the downside, the Nifty has its first support at 5,232 points, an important support level. A comfortable fall below this level will mean more decline. The next support is close by, but it will not offer any significant support to the market. The next support for the Nifty will come at 5,142 points, which will be like a trend as a close below this level will mean bearish sentiments.
Among individual stocks, this week Tata Steel Ltd, Aurobindo Pharma Ltd and Praj Industries Ltd look good on the charts. Tata Steel at its last close of Rs 470.40 has a target of Rs 479 and a stop-loss of Rs 459; Aurobindo Pharma at its last close of Rs 119 has a target of Rs 124 and a stop-loss of Rs 113; and Praj Industries at its last close of Rs 80.20 has a target of Rs 84 and a stop-loss of Rs 75.
From my previous week’s recommendations, Dish TV India Ltd and IndusInd Bank Ltd met their targets, but Hindalco Industries Ltd triggered its stop-loss.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org
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