Indian stock markets last week succumbed to fears of another hike in policy rates by the Reserve Bank of India (RBI) after food inflation crossed 10%. Key benchmark indices fell over 1.5% in the week even as global equity markets posted gains. Although China topped the losers chart last week over concerns of slowing economy, other members of Brics—Brazil, Russia and South Africa—posted moderate gains. Even the US closed the week higher for the third consecutive week.
The fact that Indian benchmark indices closed above their weekly lows is a relief, keeping alive the hopes of a rally this week. But RBI’s policy review meeting, scheduled for Tuesday, holds the key. I think a hike of 25 basis points (bps) in policy rates is broadly discounted by the markets, which will focus more on the tone of the RBI governor. One basis point is one-hundredth of a percentage point.
It is broadly expected RBI will pause the rate hike cycle following a hike this time for rest of the fiscal. If this is reflected in the policy, market sentiments will be comforted and this may push them higher. However, a hawkish tone will be detrimental to market sentiments, which are reeling under a lot of global pressures.
International cues will also be important this week as markets across the world will be cautious ahead of a summit of European leaders on Wednesday to solve the continent’s debt crisis. Investors are optimistic that a solution will be reached as European Union leaders, who held talks over the weekend to hammer out a comprehensive plan for tackling the debt crisis, said they expect a breakthrough on Wednesday. So, practically, markets are expected to remain range bound ahead of the summit and a clear trend will emerge only after that.
Also Read | Earlier columns of Vipul Verma
From an economic perspective this week, US third quarter gross domestic product (GDP) numbers will be watched closely on Thursday. According to analyst estimates, US Q3 GDP grew at 2.5% over a year earlier, compared with 1.3% in the second quarter. These numbers could be a sentiment booster. Apart from GDP numbers, key US economic indicators due include consumer confidence on Tuesday, durable goods orders and new home sales on Wednesday, building permits for the month of September, pending home sales for September and weekly jobless claims numbers on Thursday. Any positive signal given by these indicators would push the markets higher.
Technically, the rally is still intact on the charts and the markets seem to be waiting for a trigger. The consolidation in the market, now on for 11 weeks, is likely to end and a break out on either side is due. However, technically, the chances of breakout on the positive side is looking most likely. On its way up, the Nifty has a decisive resistance at 5,167, which is likely to set the trend on the bourses.
If the Nifty settles above this level, the chances of a rally on the bourses would brighten significantly and the short-term trend would turn positive.
However, before this level, the Nifty may see resistance at 5,124, which is a moderate resistance and does not offer threat to the probability to break out on the positive side. But the resistance at 5,167 would be crucial, and if this level goes, the next resistance would come up only at 5,337, which is likely to see some consolidation. This level, too, is important as this would confirm bullish trend. The next important resistance is expected at 5,412 points. On its way down, the Nifty is likely to see its first support coming at 5,010 points. This being an important support level would be watched very closely, and a close below this would be considered bearish with more fall likely in the immediate term as the next support would come only at 4,860, which is likely to be a very strong support. However, there would be a moderate support at 4,920 before the strong support at 4860 points.
Among individual stocks, this week Aban Offshore Ltd, Century Textiles and industries Ltd and Axis Bank Ltd look good on the charts. Aban Offshore, at its last close of Rs 400.85, has a target of Rs 412, and a stop-loss of Rs 383; Century Textiles and Industries, at its last close of Rs 303.95, has a target of Rs 315, and a stop-loss of Rs 291, while Axis Bank, at its last close of Rs 1,127.70, has a target of Rs 1152, and a stop-loss of Rs 1,094. From my previous week’s recommendations, ICICI Bank Ltd and Shipping Corp. of India Ltd met their targets, while Hindustan Zinc Ltd missed its target by a whisker and continues to be a valid recommendation this week.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org