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Global markets at a crossroads

Global markets at a crossroads
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First Published: Sun, Mar 13 2011. 09 03 PM IST
Updated: Sun, Mar 13 2011. 09 03 PM IST
The bourses had a volatile week over concerns of high crude prices, China’s rising trade deficit and inflation, an escalating conflict in Libya and protests in Saudi Arabia. Friday’s devastating earthquake and tsunami in Japan have only added to the worries. The economic damage wrought by the calamity is still unknown as Japan continues to struggle with its after effects and fears of nuclear radiation. But the country is a major economy and exporter; a disaster of such magnitude here will likely influence global economic in dicators.
It would be interesting to see how commodities perform globally on Monday. Oil may move up as energy will be a focus area for investors concerned about how Japan will replace its lost power generation capacity. The rise in demand for coal, cooking gas etc., in the short term to meet the nation’s demand for power generation may raise the prices of these commodities too. Coal prices are already high and production is yet to resume in full capacity in Australia’s flood-hit Queensland region.
The outlook for base metals is bearish in the immediate term as demand could fall due to damage caused to Japanese production facilities—though demand would bounce off shortly when production resumes full scale. Since Japan accounts for nearly 5% of global copper consumption, the demand for copper along with aluminium and galvanized steel could jump in the months to come, as rebuilding lost infrastructure would need huge quantities of these metals.
It is difficult to ascertain how speculators will play this lead, as higher prices of commodities would only add to inflation, which is a key problem for emerging economies. Abnormally rising cost could also impact several industries globally. In a nutshell, the impact of the Japanese tsunami on the global economy is yet to be felt—its magnitude would largely depend on the extent of damage caused in Japan.
The markets globally are at a crossroads. Most positive economic indicators have already been discounted, and the markets are taking a dim view of developments in Libya, Saudi Arabia and other parts of the Middle East and North Africa facing popular unrest. The protests in Saudi Arabia were muted, and this cooled oil prices. But I think there is more to unfold in the Gulf in the coming days, and the markets would maintain a very cautious approach until the dust settles in the region.
This week, the markets would wait for the Federal Open Market Committee (FOMC) meeting in the US, scheduled for Tuesday. The key stance of the US Federal Reserve is unlikely to change as the Fed remains committed to maintain near zero interest rates. But there was more caution after European Central Bank president Jean-Claude Trichet warned last week about inflation risks and surprised investors by saying the bank may raise interest rates as early as next month.
Back home, the Reserve Bank of India (RBI) is widely expected to raise interest rates by 50 basis points (0.5 percentage point) in a meeting on 17 March. This could trigger fresh sell off in rate-sensitive industries. The wholesale price index data on Monday would indicate how RBI would act.
As mentioned in my last column, the Nifty is stuck in a range with a major support at 5,410 and a major resistance at 5,577 points. A break out on either side would indicate the trend. Nifty bounced off 5,410 twice last week, maintaining the sanctity of this level. Now on its way down, this level would become all the more important and if Nifty breaks below this level with good volumes or settles below it, then it would be a bearish indicator and would mean more fall. The next support would come at 5,341, but it is likely to be a moderate support, with major support shifting to 5,248. On its way up, the Nifty is likely to witness its first resistance at 5,509, which is a moderate but important resistance level. If this level gets crossed then it would be poised for its major resistance at 5,577, which would be a trend-decider in short term. A convincing break above this level with good volumes or close above it would add to the positive sentiments, promising more gains going forward. However, the next important resistance would be at 5,599, followed by a major resistance at 5,671.
Among individual stocks, Hindalco Industries Ltd, GAIL India Ltd and ICICI Bank Ltd look good on the charts. Hindalco, at its last close of Rs205.75, has a target of Rs215 and a stop-loss of Rs197. Gail, at its last close of Rs442.40, has a target of Rs453 and a stop-loss of Rs429, while ICICI Bank, at its last close of Rs1,006.90, has a target of Rs1,031 and a stop-loss of Rs973.
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, Mar 13 2011. 09 03 PM IST