Monsoon worries erupted again as reports of weaker-than-expected monsoon rains triggered fresh concerns over India’s economic growth. Monsoon rains were barely a third of normal during the last week, dipping for the second straight week at a crucial period for oilseeds and sugar cane and raising concerns of rising food prices.
The soya bean-producing central part of India remained parched, getting a negligible 1% of the normal rainfall, putting the crop at risk if the dry patch continues another week. Rainfall in cane-growing Uttar Pradesh was about 80% below normal, while in Maharashtra, another sugar hub, it was about 90% in deficit in the week to 5 August.
The current picture of the monsoon looks scary for analysts and economists, who hit back immediately with downgrades. Kotak Securities Ltd was the first one to react, as it said in its report that the drought-like conditions in major parts would likely pare India’s real GDP growth by 1.7% to 4.8% in fiscal 2010, down from its earlier forecast of 6%.
Though I do not fully agree with this view, as I still remain optimistic in spite of a setback on the monsoon. I am focusing more on the broader picture, which includes the global scenario as well, as I believe continued signs of global economic recovery would boost exports, which is still not factored in the economic fundamentals. So all is not lost with a weaker monsoon.
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Globally, there was caution among investors as most positive factors were discounted and markets were gasping for fresh triggers. Though global markets got some relief on Friday, when US non-farm payroll data came in as a positive surprise and triggered fresh rally on US bourses as this was a confirmatory signal that the US economy is on track to recovery.
However, this week will be important and markets globally may see fresh triggers if the critical US economic indicators, due this week, continue to fare well. Also, retailers’ results, Consumer Price Index and other consumer data could infuse fresh lease of life in investors’ optimism about the US economy.
Moreover, this week all eyes would be on Federal Reserve, which will release a statement on Wednesday at the end of its two-day interest rate-setting meeting. The central bank is expected to hold rates near zero. Also, July retail sales data as well as quarterly scorecards from major retailers, including Wal-Mart Stores Inc., J.C. Penney Co. Inc. and Macy’s Inc., will throw light on consumer spending as the profits and projections of these firms would reveal more on consumer’s behaviour related to spending, which may help in analysing the economic patterns. So far manufacturing and employment data have bolstered investor confidence about consumer spending, which is a critical micro-economic indicator suggesting the health of the economy.
Back home, this week is important as markets eagerly wait for figures related to India’s industrial output and manufacturing output for June. This is critical data and if it impresses the market with better-than-expected numbers, it could trigger fresh buying on bourses. Other indicators include Wholesale Price Index, M3 money supply and loan growth numbers of India’s banks. Technically, the markets are at a crucial juncture as a slide from current levels would dampen sentiments and may extend the period of fall, though in absolute terms the market does not seem to be having a big downward risk from here.
In terms of the benchmark Sensex index, Monday would be an important day. If the markets fall on Monday and close with losses, then this would be a setback to sentiments as the support for a falling Sensex would fall out of the bullish orbit and would be placed around 14,895 points. Since this would be a moderate support level, the next strong support would be expected around 14,746 points, which should be able to hold the market. However, any further fall could pull it down to its next crucial support level at 14,485 points, which should be the bottom.
However, if Sensex rises on Monday and closes with gains, it would come across its first resistance at 15,312 points, a moderate resistance, following which the next resistance would come at 15,704, which would be considered strong and may force some consolidation. If this level goes, then there would be a decisive resistance at 15,973 points, which would decide the short-term trend. If this level also goes, then the Sensex would see a rally of over 300 points as the next resistance would come at 16,312 points.
The Nifty has resistance at 4,523, 4,588, 4,633 and 4,722 points, respectively. The first two areas of resistance are minor, while third is moderate and the last a strong resistance level. A break above this level would set the Nifty on fire. On its way down, Nifty has support at 4,402, 4,378, 4,292 and a rock bottom support at 4,205 points.
Among individual stocks, this week Reliance Infrastructure Ltd, Larsen and Toubro Ltd and Bank of Baroda look good on charts. Reliance Infra at its last close of Rs1,146.80 has a target of Rs1,169 and stop loss of Rs1,122. L&T at its last close of Rs1,466 has a target of Rs1,499 and stop loss of Rs1,423. Bank of Baroda at its last close of Rs424.50 has a target of Rs442 and stop loss of Rs407.
From previous week’s recommendations Bharat Heavy Electricals Ltd and United Phosphorus Ltd rose well above their targets. Allahabad Bank missed its target by a whisker and remains a valid recommendation.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org