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Euro zone cues to drive markets

Euro zone cues to drive markets
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First Published: Sun, Nov 13 2011. 10 03 PM IST

Updated: Sun, Nov 13 2011. 10 03 PM IST
In a wildly swinging market, benchmark Indian indices fell 1.5-2% last week on profit selling by funds and traders tracking cues from global bourses.
The sentiment on the bourses was cautious as two holidays during the week and widespread uncertainties in the euro zone restricted investors and funds from enlarging their commitments. Investors hit the panic button as Italy came perilously close to an economic crisis last week after yields on 10-year bonds soared over 7.6%, levels that forced Ireland, Portugal and Greece to seek an international bailout.
With public debt of more than 120% of gross domestic product and more than a decade of dwindling economic growth behind it, Italy came to the forefront of the euro zone debt crisis. It is euro zone’s third largest economy and, thus, not easy to bail out. However, the crisis in Italy defused after Prime Minister Silvio Berlusconi stepped down and the Italian senate approved a package of economic reforms in a vote on Saturday.
Markets in Europe and the US rallied in anticipation of Saturday’s crucial vote.
Markets in Asia are likely to resume with an upward gap. They may gain further on short covering by funds and traders. However, cues from the euro zone will continue to dominate sentiments and keep the upward trend fragile. Because of better-than-expected economic data from the US, including the consumer sentiment report released on Friday, markets across the world would lack conviction on both sides of the trend.
Technically, the Indian markets showed some resilience, though the broader trend was in sync with the global bourses.
This translates into some strength going forward. Moreover, the close above the crucial 5,145 points on the Nifty index on the National Stock Exchange last week is a good augury.
The level remains crucial for the markets, as a close below this level would be considered bearish.
As long as the Nifty enjoys its stay above this level, underlying sentiments will remain positive. If it slips below, the next big support will come at 4,991, although there is also an important support available at 5,081 points.
On its way up, the Nifty is likely to test its first resistance at 5,213 points, which is an important level. A close above this level will be bullish.
The next key resistance is expected around 5,269, which also needs to be monitored closely. If this level is crossed with good volumes, then the Nifty will find its next resistance at 5,312 points.
However, the trend-deciding resistance remains strong-footed at 5,367 points. If the Nifty manages to close above this level, then bullish sentiments will be confirmed.
Monday will be an important day for the Indian markets as monthly inflation number—the Wholesale Price Index data—will be released. If there is no let-up in inflationary pressures, market sentiments may be dampened—although after Friday’s monthly industrial output numbers, chances of a furthering tightening of monetary policy have weakened considerably.
Globally, the economic calendar is quite hectic this week with a report on monthly producer prices, retail sales numbers, NY Fed manufacturing data due on Tuesday, CPI inflation data, capacity utilization, and monthly industrial output data due on Wednesday, and weekly jobless claims, housing start, building permits numbers and Philly Fed business index due on Thursday. In a nutshell, developments in the euro zone will be the main driving force for the markets this week, while US economic data will continue to be the shock absorbers.
Among individual stocks this week, ACC Ltd, Bajaj Auto Ltd and Kotak Mahindra Bank Ltd look good on the charts.
ACC, at its last close of Rs 1218.60, has a target of Rs 1,243, and a stop-loss of Rs 1,186, while Bajaj Auto Ltd, at its last close of Rs 1,745.55, has a target of Rs 1,776, and a stop-loss of Rs 1,708.
Kotak Mahindra Bank Ltd, at its last close of Rs 500.10, has a target of Rs 513, and a stop-loss of Rs 481.
From my previous week’s recommendations, Aban Offshore Ltd overshot its target, Titan Industries Ltd almost met its target, while HDFC Ltd missed its target by a whisker and remains a valid recommendation.
Illustration by Shyamal Banerjee/Mint.
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, Nov 13 2011. 10 03 PM IST