After three weeks of decline fuelled by worries over the Greek debt crisis, equities bounced back on bargain hunting by investors last week, although the global outlook remains subdued.
Data on US consumer sentiment released on Friday and gross domestic product numbers from the euro zone that failed to meet expectations spurred caution.
But the biggest of all worries was China’s move to curb bank lending. China hiked the bank reserve requirement by half a percentage point, in its second such move this year, to slow the rise of bank lending and inflation.
China’s move promoted a global stock decline on Friday, although the US cut some losses in late trading on hopes that the European Union (EU) would come up with a clearly defined plan to aid debt-laden Greece.
Amid all the gloom last week, the Indian economy sprang a surprise with industrial output growing at its fastest pace in 16 years in December; the growth of 16.8% bettered all expectations.
Also Read | Vipul Verma’s earlier columns
All eyes will be on the meeting of EU finance ministers, on Monday, which will try to come up with concrete proposals on how to ensure that Greece remains solvent. The EU is expected not to commit to providing Greece with funds to avoid default, but rather propose a framework to ensure that Greece lives up to its commitments of fiscal austerity.
Equity markets will be in for trouble if the proposals fail to offer adequate guarantees. Investors’ perception about risky assets could turn severely negative, leading to a flight of capital from equity markets of emerging economies to safer havens. Even forex markets could face an upheaval.
Graphics by Paras Jain/Mint
Economic data from the US will also be tracked closely by analysts. Key data this week includes housing starts and the latest industrial output figures on Wednesday, and Wal-Mart Stores Inc.’s quarterly numbers on Thursday.
In India, the markets are likely to start off on a cautious note despite the bumper Index of Industrial Prodution (IIP) data released on Friday. The Indian markets would catch up with the rest of the world on Monday, following a holiday on Friday.
Concerns about the withdrawal of the government’s stimulus package in the Budget, and worries that industrial growth is peaking could also weigh on sentiment.
Technically, the markets are in a consolidation phase, which began last week and is likely to continue this week as well. A crucial study is suggesting an initial spurt, which might take indices 1-1.25% higher. Even this would be a part of the consolidation as markets grope for direction in a fluid global scenario.
On pure technicals, the National Stock Exchange’s Nifty index for 50 large companies could open on a cautious note and may see a lot of volatility on Monday. However, it is likely to move up following initial volatility and faces important resistance at 4,864 points.
If the Nifty crosses this level on good volumes, investor sentiment would turn positive; the Nifty would then head towards 4,952—trend-deciding resistance level for the market.
Again, as the market is showing signs of consolidation, there are limited chances that the rising Nifty would break past this level. If indeed the Nifty crosses this level on good volume, there could be a rally on the bourses that could set the index in the direction of 5,100.
On its way down, the Nifty will test its first support at 4,791, which is a moderate support level. If this level is broken, the next support for Nifty will come at 4,742. Though a moderate support, it will play an important role in directing the trend. A close below this level will mean more decline as support slips to 4671.
For the Bombay Stock Exchange’s Sensex, the first resistance is at 16,275, which is a moderate level. A close above this level will push the resistance to 16,526, which is a major resistance level and, if crossed, could change the sentiment to positive in the short term.
On the way down, the first support for the Sensex is at 16,064, which is a minor support, followed by 15,890, which is a moderate but important support level. There is strong support at 15,651, which would be very important—a close below this level would spell more downside.
Among individual stocks this week, Tata Motors Ltd, Alstom Projects India Ltd (APIL) and Housing Development Infrastructure Ltd (HDIL) look good on the charts. Tata Motors, at its last close of Rs678, has a target of Rs694 and a stop-loss of Rs656.
APIL, at its last close of Rs527.15, has a target of Rs542 and a stop-loss of Rs512, while HDIL, at its last close of Rs312.50, has a target of Rs326 and a stop-loss of Rs301.
From my previous week’s recommendations, Reliance Infrastructure Ltd and Tata Power Co. Ltd met their targets, while Maruti Suzuki India Ltd missed by a whisker.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org