The roller coaster ride continued on bourses amid persistent selling by foreign funds and traders as sentiments remained depressed on concerns over valuations, high rates of inflation and interest rates. Markets remained choppy and selling was seen on every recovery. However, late bargain buying by funds and short covering by traders cleared some gloom as the benchmark indices ended the week with moderate losses of 1.59% over the previous week.
Global trends remained positive and flow of economic news remained encouraging as US consumer sentiments touched an eight-month high, weekly jobless claims declined and merger and acquisition activities gathered momentum. China increased its benchmark rates by 25 basis points on Tuesday. One basis point is a hundredth of a percentage point. Interestingly it did not have any impact on global bourses and investor confidence about global recovery absorbed the Chinese move and sentiments stayed positive. The end of a uprising in Egypt was also a positive as it puts an end to uncertainties in the Middle East for the time being. Oil prices fell to a 10-week low, which is likely to further boost sentiments across Asian bourses on Monday as it eases some concerns over inflation.
Adding to the comfort about the global economies was the news that Spain’s economy grew slightly in the fourth quarter after stagnating in the previous three months. The euro zone’s fourth biggest economy expanded by 0.2% in the fourth quarter. This was though not a sign of rebound, but it indicates that the things are moving in desired direction.
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Back home the economic news was mixed with food inflation coming down to 13.7% in end January. However, a drop in monthly industrial output and manufacturing data remained a cause of concern. Given the current position of the market, this is discounted in the valuations and growth is likely to pick up in coming quarters. Moving on, we are now heading closer to the budget, which is likely to give necessary direction to the markets. For the week, the markets would wait to see data on Wholesale Price Index (WPI) on Monday for cues on likely action of the Reserve Bank of India. For rest of the week, markets would continue to take cues from global economies as Indian economic calendar is light.
Globally, Monday would be an important day as global markets would react to Chinese monthly import and export numbers. This data is going to be tricky as rise in imports would mean more chances of monetary tightening by Chinese central bank. A fall in imports would mean negative for stock markets as it would mean slowing down of demand from China, the growth engine of the world. It would be interesting to see how the global bourses react to Chinese data. The broader analysis of global markets suggest a positive momentum would continue on global bourses this week.
Back home, the rebound on stock market may extend on Monday, mainly on positive sentiments. However, both Chinese imports and Indian WPI would rule sentiments. Technically, the recovery on bourses is likely to pick up pace on Monday as key indicators have started turning up in the oversold zone, which suggest more gains.
Technically, the Nifty index on the National Stock Exchange on its way up is likely to see its first resistance at 5,342 points. Though there are chances that it might cross this level at open, technically this remains an important resistance as it is expected to see some selling. If this level is breached, the next resistance level would come at 5,401-5,424 points. Unless the Nifty crosses this level with good volumes and close above it, the level would continue to hold. If this level goes, the next resistance would come up at 5,486 followed by a strong resistance at 5,526, which is likely to be strong.
On the downside, Nifty would see its first critical support at 5,269 points. This level is going to be important as a fall below this accompanied by good volumes would mean strengthening of negative sentiments, which may push it down to its next support at 5,206 points. This would be moderate and may not offer enough ground to a falling Nifty. The next and the most important support would come at 5,152 points, which, if broken with good volumes, would be bearish.
Among individual stocks, this week Welspun Corp. Ltd, Tata Steel Ltd and HDFC Bank Ltd look good on charts. Welspun Corp. at its last traded price of Rs 172.85 has a target of Rs 178 and a stop-loss of Rs 168. Tata Steel Ltd at its last close of Rs 595.30 has a target of Rs 613 and a stop-loss of Rs 581, while HDFC Bank at its last close of Rs 2,059.30 has a target of Rs 2,098 and a stop-loss of Rs 1,972.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at email@example.com