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Earnings to dominate sentiments

Earnings to dominate sentiments
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First Published: Sun, Jul 03 2011. 09 02 PM IST
Updated: Sun, Jul 03 2011. 09 02 PM IST
Indian stock markets ended higher last week on bargain hunting by funds and traders. The gains were on expected lines as the Nifty index on the National Stock Exchange had bounced strongly in the previous week and was back in trading band with technical pointers turning up, which suggested it was poised to break the upper end of the band in which it had been trading since the beginning of May. The breach of the upper end signalled further short-term gains on the bourses.
Globally, US and European bourses posted hefty gains and aided positive sentiments. Dow Jones gained 5.43%, while the Nasdaq closed up 6.15% over the week. In Europe FTSE100 shot up 5.13%, while CAC40 of France ended up 5.88% and DAX closed up 4.19%. Economic indicators were not as optimistic. US manufacturing grew at a strong pace in June, suggesting the global economy is starting to shake off its recent weakness, but the sector lost steam for a second month in Europe and Asia. The US ISM (Institute for Supply Management) said its June index of national factory activity rose to 55.3 from 53.5 the previous month.
The Purchasing Managers’ Indices of Asia and Europe in June slid to their lowest in many months as factories fought a twin battle with weak consumer demand overseas and tightening monetary policy at home. The most worrisome figures came from China, where the factory sector grew at its slowest pace in 28 months in June as new orders expanded less quickly, with weaker global demand and tight monetary policy at home pinching production. India was next in line. The HSBC Markit Purchasing Managers’ Index, based on a survey of around 500 companies, showed a sharp fall to 55.3 in June from 57.5 in May, its lowest level since September last year and the steepest monthly fall since November 2008.
The markets have just finished the first quarter of the current fiscal year and once again, quarterly earnings and revenue guidance dominate sentiments. Global equities are likely to trade calmly this week with an eye on big ticket numbers. Alcoa Inc., which rings the bell for earnings announcements, will declare its results on 11 July. In India, the earnings season will be kick-started by Infosys Ltd on 12 July.
This week, in the US, key data announcements include factory orders for May, the ISM services index and several indicators on the labour market, including ADP private sector employment report, weekly jobless claims, Friday’s non-farm payroll report and the unemployment rate. The focus will also be on the approaching deadline for Congress to reach an agreement on the debt limit. The US treasury on Friday kept up the pressure on Congress to strike a deal to raise the debt ceiling and prevent a default.
Back home, the week will be light on economic indicators and the market will continue to take cues from global bourses. On Monday, markets are likely to start on a positive note with a gap up opening, although activity is likely to be limited due to holiday on US bourses. During the week, the Nifty is likely to trade with a positive bias. On its way up, it is likely to see first resistance at 5,671, which is moderate and may not offer any significant resistance to volume-led rise.
The next resistance will come at 5,712, which is likely to be a good resistance level and might see some profit taking. However, even this level may not remain strong if the Nifty gains with good volumes. A volume-led rise in the Nifty will push the resistance to 5,781, which is likely to be a strong resistance level and should see some consolidation. If the Nifty crosses this level also, there will be sharp rally on the bourses, which will push the Nifty to 5,891, the next critical resistance level.
On the downside, the Nifty has its major support at 5,591, which is very close to Friday’s closing level of 5627.20 points. If the Nifty settles below this, the undertone will start getting weaker and the chances of profit selling will brighten. The next support level will come up at 5,546, which in normal circumstances should offer good support. If this goes, which is not very likely, positive sentiment will end in the immediate term and the Nifty could find its way down to 5,443 points.
Among individual stocks this week, Alstom Projects India Ltd (APIL), Bank of India and Havell’s India Ltd look good on the charts. APIL, at its last close of Rs 526.05, has a target of Rs 538, and a stop-loss of Rs 511. Bank of India, at its last close of Rs 414.20, has a target of Rs 425, and a stop-loss of Rs 412, while Havell’s, at its last close of Rs 386.05, has a target of Rs 398, and a stop-loss of Rs 371. From my previous week’s recommendations, Bharat Heavy Electrical Ltd, Polaris Software Lab Ltd and United Spirits Ltd met their targets easily.
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, Jul 03 2011. 09 02 PM IST