Caution and optimism can coexist, and last week offered proof of it. Concern surrounding the debt crises of Greece, Spain, Portugal, Ireland and Dubai was matched by optimism about the recovery of the global economy, evident in economic data and market perception.
Global markets took the inability of the European Union (EU) to resolve debt issues in their stride. A meeting of EU finance ministers ended without any assurances or clear plans for Greece. No financial commitments were made for the debt-ridden country.
The Greek crisis had rocked the markets the previous week, and it was feared EU’s failure to respond to it would further weigh them down. Yet, the meeting’s disappointment hardly created a flutter; there were no headlines on these countries Tuesday onwards.
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Instead, the focus shifted to the economic fundamentals of the developed countries. US economic data gave solace to the financial world. Even the surprise hike in discount rate by the US Federal Reserve on Thursday was eventually interpreted as a sign of strong recovery. Defying expectations of a heavy fall, the US bourses edged up on Friday.
Reaction awaited: The Bombay Stock Exchange building. The market is keen to see the government’s action plan to push forward growth. Ashesh Shah / Mint
The good financial results of Wal-Mart Stores Inc. were seen as a reflection of spending patterns in the US. Although, the weekly jobless data disappointed, several other critical pointers—including housing—were positive enough to cheer investors.
Global markets also drew comfort from the sharp rise in commodity prices, including metals and oil. Metals easily reclaimed their three-week high despite a strong dollar, which normally leads to weak commodity prices. But last week, this correlation was missing as commodities rallied on hopes of rising global demand. China was closed due to the lunar new year holiday. But it is likely to catch up when it resumes trading.
This week, all markets will be watching Federal Reserve chairman Ben Bernanke. US bourses could head northwards if he gives a reassuring assessment of the US economic recovery and retail earnings show improvement.
At Bernanke’s half-yearly testimony on monetary policy before a congressional panel this week, investors would like to know what the surprise rate hike suggests, its implications for the health of the financial sector and whether this would lead to a possible removal of last year’s economic stimulus.
But due to the existing economic condition, whatever Bernanke says would go down well with the markets. If he offers a reassuring statement about recovery, it would dispel doubts about the US economy. If he does not speak emphatically about the US economy, the concerns about Fed’s stand over hike in discount rates would subside.
As weekly food inflation remained high, the Indian market did not have much to offer last week. But the coming week is going to be the most significant one for the whole year, with the Budget scheduled for release on Friday. It’s anybody’s guess if finance minister Pranab Mukherjee will roll back last year’s stimulus in the wake of a recovery—a partial rollback is what most people are expecting.
The market is also keen to see the government’s action plan to push forward economic growth, rein in the fiscal deficit, financial services reforms, rationalization of duties and taxes, a road map for implementation of goods and services tax and infrastructure spending.
Purely technically, I expect gains for the market following the Budget. If there are no major setbacks in the Budget, there should be a rally.
The Bombay Stock Exchange’s sensitive index, or Sensex, will have its first resistance at 16,302, which is a moderate but important resistance level. Following this, there is critical resistance at 16,537 points. If this resistance is broken, there would be strong gains on the bourses. On the downside, the Sensex has minor support at 16,108, followed by moderate support at 16,010 and a very strong support at 15,661.
For the S&P CNX Nifty, the resistance is placed at 4,874, a moderate resistance level followed by a trend deciding resistance at 4,954. If this resistance is overcome, there would be strong gains for the Nifty. On its way down, the Nifty will find minor support at 4,805. It will be followed by support at 4,749 and very strong support at 4674 .
ICICI Bank Ltd, IVRCL Infra Ltd and Punjab National Bank look good on the charts among individual stocks this week. ICICI Bank, at its last close of Rs833.55, has a target of Rs856 and stop-loss at Rs811. IVRCL Infra, at its last close of Rs313.75, has a target of Rs329 and a stop-loss of Rs298, while Punjab National Bank, at its last close of Rs885.35, has a target of Rs909 and a stop-loss of Rs866.
From the previous week’s recommendations, Tata Motors Ltd and Alstom Projects India Ltd overshot their targets with ease, while Housing Development and Infrastructure Ltd inched very close to its target.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at email@example.com