Much on expected lines, equities rallied and ended the week more that 5% higher in holiday shortened week. Breakout on the positive side by benchmark indices was triggered by positive signals from Reserve Bank of India in its policy review meeting and keenly awaited deal in the euro zone, where leaders reached a long-awaited agreement to boost the region’s bailout fund and struck a deal with banks and insurers, who will take a 50% loss on their Greek bonds.
The euro zone deal was the trigger for global equities, which led to a strong rally across all major markets. Hang Seng (Hong Kong) posted a weekly rise of 9.34%, followed by Brazil up 7.71%, China up 6.73%, Germany up 6.28%, France up 5.59%, while Russia ended up 5.50%. The European deal and better than expected earnings season in the US ensured the best month for S&P 500 in almost 40 years.
The slew of positive economic data in the US showed its economy grew at 2.5% pace in the third quarter—its fastest in a year. Consumer spending was strongest since the 4th quarter of 2010, business investment was fastest in more than a year and consumer sentiment improved in October for the second month in a row.
These positive US economic indicators also contributed to positive sentiments and were instrumental in carrying over the strong momentum provided by the euro zone deal.
I am expecting the positive trend to continue as not only the charts, but the underlying sentiments and economic pointers are showing optimism. Due to strong positive sentiments, technical breakouts and strong economic indicators should be able to carry on the northward momentum, leading to further rise on bourses. This week is crucial from economic point of view. In the US this week, employment data—which is the weakest, most vulnerable and keenly watched economic indicator—would be the highlight.
If the US economy is able to present a decent employment scenario, then this could well be the next trigger for major global bourses.
The US Federal Open Market Committee meeting on interest rates scheduled on 1-2 November will also be a highlight as investors would like to see any indication which signals ground work for next round of quantitative easing. Any such indication would be a booster for equities. Apart from US economic indicators, Chinese monthly PMI data would also be watched closely for cues.
Also Read | Vipul Verma’s earlier columns
Any positive signs reflected by this data would be welcomed by stock markets.
Back home, the week is quite hectic as on Monday the monthly infrastructure output data would be released, followed by HSBC Markit manufacturing PMI for October, auto sales for October, and trade data for September. Since the HSBC Markit manufacturing PMI has been disappointing for last two months, investors would be keeping a close eye on this number. Similarly, auto sales would be a good indicator of economic optimism as good auto sales figures in ongoing festival season would be a positive for economy and stock markets.
Technically, the breakout on positive side last week is a big positive for the stock market and is likely to push the markets further higher in coming weeks. Since the range of consolidation was quite big both in terms of number and time frame, so the breakout is also likely to be a strong one. As I have been mentioning in the last few columns that the benchmark Nifty index on the National Stock Exchange would see a rally on the breakout of 5,167 points, the same happened last week and the Nifty almost touched 5,400 points.
The termination point of this rally could extend upto 5,658 points, which is still 298 points away. On its way up, Nifty is likely to see its first resistance at 5,448 points, followed by the next resistance at 5,530 points, which is likely to see some consolidation, though it may not affect the outlook of the market, which would continue to remain positive. The next resistance would come up at 5,608 points, which is though a moderate resistance, but may trigger some unwinding if volume fails to match up. The final resistance would be at 5,658 points, which is likely to be a major resistance.
On its way down, the Nifty has its first support at 5,312 points, which is a minor support. It would be followed by a strong support at 5,191 points, which would be a key support to watch as a close below this level would be negative for the Indian stock markets. But the support at 5,143 would be most crucial and could end the bullish sentiments if Nifty settles below this level.
Among individual stocks, this week Bhel Ltd, Development Credit Bank Ltd (DCB) and Indian Bank look good on charts. Bhel at its last close of Rs 327.45 has target of Rs 339 and stop loss of Rs 311, DCB at its last close of Rs 44.15 has target of Rs 47 and stop loss of Rs 41, while Indian Bank at its last close of Rs 205.25 has target of Rs 212 and stop loss of Rs 196.
From my previous week’s recommendations, Aban Offshore Ltd, Axis Bank Ltd and Century Textiles and Industries Ltd all overshot their targets by a wide margin.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at email@example.com