Much on expected lines, Indian stock markets started the last week lower and later recovered to end with moderate gains. Markets broadly saw consolidation with solid support coming from the support band mentioned in my last column. Global markets, though, fared better as major markets braved global economic concerns, including the slowing of US economy and turmoil in Europe, and posted sharp gains over the preceding week. The Nasdaq in the US saw its best weekly percentage gain since July 2009 as technology stocks rebounded on fresh buying.
Also Read | Vipul Verma’s earlier columns
Although there were talks that European leaders are working out plans to act together to limit damage from the sovereign debt crisis, there was not much progress on the ground. However, stocks rose sharply across the US and Europe, reflecting positive sentiments.
Indian benchmark indices rose less than half a percent over the previous week as investor sentiments remained on tenterhooks before the policy review meeting of the Reserve Bank of India (RBI) on Friday. The meeting was crucial for stock markets, especially following RBI’s hawking raise of policy rates by 50 basis points (bps) in its previous meeting.
Investors had discounted a 25 bps hike this time around and, therefore, the decision to raise rates by 25 bps relieved the markets.
One basis point is one-hundredth of a percentage point.
The week was bad from economic indicators’ perspective. India’s monthly industrial output slumped to 3.3% year-on-year in July, its lowest in nearly two years, driven by a drop in capital goods production.
Moreover, monthly Wholesale Price Index (WPI) inflation almost reached double digits, raising concerns about the efficacy of the central bank’s monetary tightening and its cost to the Indian economy. But gains posted by the Indian bourses last week suggest the markets have discounted the current negative sentiments.
This week, all eyes would be on the two-day meeting of the US Federal Reserve, which will decide on a number of issues, including the third round of quantitative easing (QE3). Fed chief Ben Bernanke plans to pull down long-term interest rates to prop up the US economy. Since investor expectations are high, it will be important to see how much the Fed is able to deliver.
The markets will also watch the developments in Europe. Progress on any united effort to contain the crisis may trigger a rally on the global bourses. This week’s economic calendar is rather light, including housing starts and building permits data on Tuesday, existing home sales on Wednesday, Federal Open Market Committee (FOMC) meeting and weekly jobless claims on Thursday. Nothing important is due in India or China this week, while the European economic calendar is also light.
From a technical perspective, the trend on the Indian bourses is looking positive as the Nifty index on the National Stock Exchange heads towards its most crucial technical resistance level of 5,213 points. This level will decide the short-term trend; any close above it will be a big boost for the market and push it towards the next resistance level of 5,323 points. This level will also be important as its breach will spell the end of gloom on the Indian bourses.
But before these levels, the Nifty will come across its first resistance at 5,130, a moderate resistance level, followed by another key resistance at 5,191 points. Following this, the Nifty will test its crucial resistance at 5,213 points. On its way down, the Nifty will see its first meaningful support at 5,033 points. If this level breaks, the immediate outlook of the Nifty will turn negative, with the next support expected at 4,967 points. Further below, there will be a rock solid support at 4,910 points.
Among individual stocks, this week Orchid Chemicals and Pharmaceuticals Ltd, Yes Bank Ltd and United Phosphorus Ltd look good on the charts. Orchid Chemicals, at its last close of Rs 197.65, has a target of Rs 208, and a stop-loss of Rs 187. Yes Bank, at its last close of Rs 280.70, has a target of Rs 289, and a stop-loss of Rs 268, while United Phosphorus, at its last close of Rs 149.60, has a target of Rs 156, and a stop-loss of Rs 142.
From my previous week’s recommendations, HDFC Ltd and Dr. Reddy’s Laboratories Ltd overshot targets, while Wockhardt Ltd missed it by a whisker and continues to remain a valid recommendation for this week.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org