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Markets likely to be volatile

Markets likely to be volatile
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First Published: Sun, Oct 24 2010. 09 43 PM IST
Updated: Sun, Oct 24 2010. 09 43 PM IST
Indian stock markets eked out marginal gains last week in the absence of fresh triggers, causing the Nifty to consolidate around the 6,050 level. Although the markets moved on expected lines, some highlights need mention. The success of Coal India Ltd’s initial public offering, India’s largest share sale, proved that there is enough risk appetite and liquidity in the markets to sustain their momentum. Moreover, domestic institutional investors (DIIs) were seen buying equities after a long time. In the last three reporting days of last week, DIIs remained net buyers to the tune of Rs 367 crore. So, overall sentiment remained cautiously positive despite some selling at higher levels.
Globally, the trend was positive. European stock markets led by Germany, France and Russia were among the prominent gainers. US markets also ended the week on a positive note, and posted moderate gains over the week. China, which also ended marginally higher last week, reported better-than-expected quarterly gross domestic product and monthly industrial production numbers. China’s surprise interest rate rate hike during the week did not dull optimism about the Chinese economy. But overall, investor sentiment remains cautious worldwide, with an eye on news related to stimulus measures expected to be unveiled by the US; both the stock and currency markets globally will take their cues from the measures. In the earnings season so far, Indian companies have delivered good quarterly results. Companies in the US and other developed economies have delivered results that have largely been in line with expectations.
The markets are currently in a consolidation phase and no major fundamental push is expected this week. The outcome of the meeting of Group of 20 (G-20) nations, which had been keenly awaited by market participants on Friday, was more or less on expected lines with some hardening of the rhetoric on currencies in the final communiqué. In practical terms, the meeting turned out to be a non-event for equity markets.
Technical studies are suggesting that there could be heightened volatility this week. Chances are there is one big upward move in the making; a breakout on the upper side could be just round the corner. Purely technically, this breakout could take the Nifty back to its recent highs. En route to this level, the Nifty is likely to come across its first resistance at 6,127 points, which is likely to be a critical level. A breakout above this level could guide the Nifty even higher as the next crucial resistance level is expected to come between 6,216 points and 6,228 points. This level would be moderate resistance; if this level is crossed, the Nifty would face strong resistance at 6,289 points,, which is likely to usher in consolidation and profit-selling.
On the downside, the Nifty is likely to find its first major support at 5,967 points, which is a very important level. If it falls below this level, there would be a further decline, which may take the Nifty to 5,856 points, which is tough support and should hold in normal circumstances. But if the Nifty settles below this level, there would be a sharp fall, with next major support seen at 5,732 points.
Economic data releases and the dollar’s movement would be watched closely this week. Any signs of the dollar strengthening would mean some profit selling. US data that will be tracked by market participants include existing home sales, durable goods orders and third-quarter gross domestic product and weekly jobless claims.
One important thing to remember is that since the markets are likely to be volatile this week, the chances of a positive break out are more. So investors should keep a close eye on any negative triggers that could lead to wild gyrations in the markets.
Among individual stocks this week, ACC Ltd, Steel Authority of India Ltd (SAIL) and ICICI Bank Ltd look good on the charts. ACC, at its last close of Rs 983.55, has a target of Rs 999 and a stop-loss of Rs 962. SAIL, at its last close of Rs 219.35, has a target of Rs 233 and a stop-loss of Rs 204 while ICICI Bank, at its last close of Rs 1,131.85, has a target of Rs 1,154 and a stop-loss of Rs 1,102.
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, Oct 24 2010. 09 43 PM IST