Despite uncertainties on the global horizon, Indian bourses posted gains last week on strong bargain buying by funds and traders. It was mentioned in last week’s column that the markets would be weak in the first half and the Nifty index on the National Stock Exchange may test the lower end of the band at 5,248 points. It was also mentioned that if the Nifty bounces off after breaking below this level to close above 5,248, then the sanctity of this big support would be maintained. The Nifty bounced back after breaching the critical level and did not retest this level. This was the first sign of what is going to happen next.
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The global majors, though, remained weak during this period, with US and European majors posting moderate losses over the week. But Asian bourses were winners, with China posting a 3.89% rise, followed by South Korea, Hong Kong and India. The prospects of European bourses remained hazy in the wake of uncertainties over Greece, as investors remained fearful that Greece’s government might fail to pass an austerity plan next week, which could force a default on its debt repayments.
Sentiments in the US remained mixed amid inconclusive sets of economic data, some of which painted a rosy picture; for instance, new orders for long-lasting US manufactured products, known as durable goods, which increased 1.9% in May after dropping 2.7% in April as bookings for transportation equipment rebounded strongly. However, the US Federal Reserve gave a more pessimistic outlook on the US economy and offered no hints about further monetary support. According to the reports so far, the end of US Federal Reserve’s cheap money policy of quantitative easing, dubbed QE2 by investors, which is set to expire at the end of June, also weighed on investors’ sentiments.
The policy, which has been credited with boosting stocks and blamed for sky-high commodity prices and a weak dollar, is being seen as a setback to positive sentiments. However, comments from Chinese Premier Wen Jiabao signalling a potential shift in the country’s monetary policy trends was well received by global stock markets and boosted Chinese stocks.
The markets are still not out of the woods. The Nifty will continue to trade in the band of 5,248 and 5,612 points. On the basis of key technical studies, I am expecting market sentiments to stabilize and resume gains from Wednesday, which means Monday and Tuesday could be softer on the bourses. The Nifty is likely to see its first support at 5,438, which is likely to be a moderate support level. The next support level would come at 5,378, followed by a strong support at 5,321.
On the upside, the first resistance is now placed at 5,524, which is an important resistance. A break will boost sentiments, with next resistance target at 5,568 points. This would be a moderate resistance only and may not offer any significant threat to the rising Nifty. The next resistance, which is at 5,612, will be a trend-deciding resistance. If breached with good volumes, it would mean the beginning of a new positive trend on the bourses.
Fundamentally also, this week is going to be important, as there is a lot of data due. Among important ones, India’s fiscal deficit data for April, infrastructure output for May and trade deficit data for the fourth quarter are due on 30 June.
On Friday, the HSBC Markit Manufacturing PMI data would be watched closely for cues. Among international economic pointers, the weekly jobless claims numbers, housing and manufacturing data will be important economic indicators in the US, while the S&P/Case-Shiller April home prices index on Tuesday and the National Association of Realtors’ pending home sales for May on Wednesday would also be watched closely.
Back home, among individual stocks this week, Bharat Heavy Electricals Ltd (Bhel), Polaris Software Lab Ltd and United Spirits Ltd look good on the charts. Bhel, at its last close of Rs1,947.20, has a target of Rs1,984, and a stop-loss of Rs1,901.
Polaris Software, at its last close of Rs172.45, has a target of Rs178, and a stop-loss of Rs164, while United Spirits, at its last close of Rs942.60, has a target of Rs968, and a stop-loss of Rs911.
From previous week’s recommendation, though the stocks initially fell unusually on panic over a Mauritius tax treaty and came below their stop-loss levels, all the stocks—Tech Mahindra Ltd, Oil and Natural Gas Corp. Ltd and State Bank of India—hit their targets eventually.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at email@example.com