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Markets in consolidation phase

Markets in consolidation phase
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First Published: Sun, Dec 11 2011. 08 25 PM IST

Shyamal Banerjee/Mint
Shyamal Banerjee/Mint
Updated: Sun, Dec 11 2011. 08 25 PM IST
Amid alternate bouts of global optimism and domestic disappointment over economic indicators, India’s benchmark guages posted losses of about 1.5% over the previous week. The broader trend across the world remained cautious and benchmarks closed mixed as investor sentiments remained on tenterhooks ahead of a crucial summit of euro zone leaders, which concluded on Friday. Following the summit, Europe secured an agreement to draft a new treaty for deeper economic integration in the euro zone. The pact went some way to address the structural problems behind the bloc’s debt crisis, but investors said more was now needed to relieve the stress in the region’s troubled debt markets.
The outcome left markets uncertain whether and when more decisive action would be taken to stem the ever growing debt crisis in the euro zone, which is fast spreading to other countries. As far as economic indicators are concerned, the global indicators were on expected lines and signalled improvement. However, Asian economic indicators remained weak.
Shyamal Banerjee/Mint
Back home, concerns over an economic slowdown were reignited following the lowering of India’s GDP growth forecast for the current fiscal. The Indian economy is likely to grow between 7.25% and 7.75% in the fiscal ending March, sharply lower than the original estimate of 9%. This was a severe blow to market sentiments as finance minister Pranab Mukherjee and Prime Minister Manmohan Singh have been sounding optimistic about India’s economic credentials. The scaling down was not a surprise as global financial majors had already lowered estimates. I do not expect the ghost of the economic slowdown would haunt the Indian bourses as prices have already discounted the now projected growth rate.
What would be more important for the market would be to see the action of the Reserve Bank of India (RBI) in the policy review meeting later this week. Markets are hoping that given the slowdown of economic growth and a slump in industrial and manufacturing growth, the tone of the central banker could turn dovish, which means the rate hike cycle could be paused. If RBI indeed pauses and signals peaking of interest rates, it could actually be good news for the market.
Before the RBI policy review meet, markets will watch the Index of Industrial Production (IIP) numbers scheduled for release on Monday. It is broadly expected that industrial output shrunk in October from the same month a year ago, its first decline in over two years. If IIP data comes in as per expectations, it will put pressure on RBI to lower rates. Following the IIP data, all eyes will be on monthly Wholesale Price Index (WPI) data, on Wednesday. WPI data would further offer cues on RBI’s likely action.
Globally, the earnings pre-announcements will be in limelight as so far these have been sharply negative. Since the trend in earnings is pretty weak, the global markets will need a major trigger to maintain momentum. The economic calendar this week in US is hectic with the Federal Open market Committee meeting on interest rates and retail sales due on Tuesday. The next major set of economic indicators will be released on Thursday, which includes producer prices for November, weekly jobless claims, industrial output for November, capacity utilization for November and CPI inflation for November.
Back home, technically, the markets are in consolidation phase, now looking to recover on Monday. The extent of recovery will be instrumental in defining the trend for next two days. If the Nifty index on the National Stock Exchange closes above 4,921 on Monday, it would be a good sign and would mean further gains on Tuesday. However, if markets settle below this, the consolidation will likely continue on Tuesday and Wednesday. The Nifty has resistance at 4921, which is an important level. If this level goes, the next level will come up at 4,983. However, the next resistance at 5,018 will be the most important one as it will decide the Nifty’s short-term outlook.
On the downside, the Nifty has support at 4,841 points. A close below this will be bearish as it will open substantial downside for the Nifty. The next important support will be 4,767, followed by a strong support at 4,712 points.
Among individual stocks this week, Aditya Birla Nuvo Ltd, Lupin Ltd and Bharat Forge Ltd look good on the charts. Aditya Birla Nuvo, at its last close of Rs 915.50, has a target of Rs 928, and a stop-loss of Rs 896; Lupin, at its last close of Rs 441.35, has a target of Rs 453, and a stop-loss of Rs 427, while Bharat Forge, at its last close of Rs 263.25, has a target of Rs 269, and a stop-loss of Rs 252.
From my previous week’s recommendations, ABB Ltd overshot its target, while Reliance Infrastructure Ltd missed the target by a whisker and Bhushan Steel Ltd hit its stop-loss.
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, Dec 11 2011. 08 25 PM IST