Infrastructure output data could be a trigger for stock markets

Infrastructure output data could be a trigger for stock markets
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First Published: Sun, Apr 25 2010. 09 46 PM IST

Updated: Sun, Apr 25 2010. 09 46 PM IST
Last week was full of action on both the economic and corporate earnings fronts. Companies— both in India and the US, the world’s biggest economy— have reported robust earnings so far, reflecting the economic recovery. The number of corporate earnings beating expectations are higher than in the previous quarters, boosting investor sentiment. A majority of the big Indian companies that have announced earnings have beaten Street estimates by varied margins.
In the US, too, the hits have beaten the misses. Of the 172 S&P 500 companies that have reported earnings for the quarter, around 83% have beaten expectations, well above the 61% in a typical quarter and above the 79% record set in the third quarter of 2009.
US government data released last week showed sales of newly built single-family homes rose in March to their highest in eight months. Riding positive sentiment, the homebuilders index racked up its biggest weekly advance since July 2009, rising 12.8%, and is on track for its sixth straight monthly gain. The US housing sector has been lagging behind the broader economic recovery; this data should allay fears about the sector. New orders for durable manufactured goods, excluding transportation, posted the largest gain in over two years—another positive for the US economy.
Back home, the Reserve Bank of India unveiled its credit policy last week, which was on the expected lines. The policy rate hikes were lower than expectations, which clearly boosted sentiment. The forecast of a normal monsoon was another major booster, which eased concerns about surging inflation because good rainfall can help lower food prices. On the corporate earnings front, the journey has been very good so far.
Globally, Greece will be at the centre stage in the coming days after formally requesting aid from the European Union and the International Monetary Fund on Friday. Apart from it, economic indicators such as the US quarterly gross domestic product estimate and reports on consumer sentiment and consumer confidence will be watched closely for more cues on the American economic recovery. At its two-day policy meeting, the US Federal Reserve is expected to keep interest rates near zero and stick to its pledge of low rates for an extended period to foster the recovery. If the Fed were to even hint at a change of stance, there could be tremors on markets across the globe.
In India this week, with more companies due to release their earnings, stock-specific action will continue. Apart from earnings, this week would be important because derivative contracts for April are due to expire on Thursday, making for volatility. I am not expecting any major downslide owing to the volatility. Data on infrastructure output in March would be released on 30 April, which could be a trigger for the stock markets.
Technically, the strong recovery seen last week has boosted investor sentiment and despite caution about valuations, the growth is likely to continue. Although higher levels are likely to attract some profit selling, at this point in time there does not seem to be a substantial threat to the rising market.
In terms of the S&P CNX Nifty, on its way up the Nifty will face its first resistance at 5,348 points, a level which is likely to prompt some consolidation. If the level is breached, the next—and moderate resistance—is at 5,376 points. The Nifty will then come up against trend-deciding resistance at 5,399 points, which if overcome would ensure more gains and new recent highs. On its way down, support for the Nifty is likely to come at 5,276 and 5,244 points. The Nifty has critical support at 5,191 points; if it falls below this level, it would point to a bearish trend.
In terms of the Bombay Stock Exchange (BSE) Sensex, the initial resistance levels are 17,781 and 17,953 points; trend-deciding resistance is at 18,040 points. On the downside, the Sensex has support at 17,612 and 17,491 points, with trend-deciding support at 17,389 points.
Among individual stocks, Educomp Solutions Ltd, DLF Ltd and HDFC Bank Ltd look good on the charts. Educomp Solutions, at Rs711.05, has a target of Rs727 and a stop-loss of Rs694. DLF, at its last close of Rs332.30, has a target of Rs345 and a stop-loss of Rs319. HDFC Bank, at its last close of Rs1,951.80, has a target of Rs1,974 and a stop-loss of Rs1,928.
From my previous week’s recommendations, Cipla Ltd, Lupin Ltd and Hindustan Unilever Ltd all met their targets easily.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Sun, Apr 25 2010. 09 46 PM IST