Indian benchmarks and equities tanked on offloading by funds and building of short positions by traders on concerns over global economic concerns. Interestingly, the US, the epicentre of global economic turmoil, posted sharp gains over the previous week. Even Europe, which has been reeling under a crisis for several months, posted moderate gains. Major emerging economies, including Brazil, Russia and China, posted handsome gains over the week. But India fell over 2%, finding its place among the worst performing markets.
There were not many India-specific reasons to account for the fifth consecutive week of fall on Indian bourses. Inflation has been a threat for a long time and the monetary tightening policy is now nearing its end. So practically, there is not much to support a persistent fall over five weeks on the bourses. Indian bourses were driven away on global concerns. The question now is: what lies ahead? Since the Nifty is now close to its strong support of 4,712 points, which looks like a short-term bottom, technically. However, since the uncertainties continue on bourses, this level may also weaken.
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Last week, the much-awaited speech of US Federal Reserve chairman Ben Bernanke in Jackson Hole, Wyoming, was pretty much on expected lines. Bernanke announced the central bank’s policy panel will meet for two days in September instead of the scheduled one-day meeting to discuss any more stimulus. This gave the markets hope. He shifted the focus on President Barack Obama and Congress by saying that the burden of ensuring a solid foundation for long-term growth lay at the feet of the White House and the US Congress. Obama is expected to detail plans to create jobs after he returns from vacation the week after next. This week, European Central Bank chairman Jean Claude Trichet will also be in focus to see if he keeps the door open for more buying of bonds from countries struggling with rising borrowing costs.
This week would be important from economic indicators’ perspective. Once again, non-farm payroll data will be in focus on Friday to judge the state of US economy. Also, the US employment rate will be watched closely for cues. Personal income and consumption on Monday, S&P/Case-Shiller home prices on Tuesday, factory orders on Wednesday and the Institute for Supply Management’s factory activity index on Thursday will be watched closely. Hurricane Irene will also dominate sentiments on Monday as the storm, which was heading towards New York, is likely to cause extensive damage worth billions of dollars besides causing disruptions due to power failures and shutting down of refineries, power plants and business establishments. In China, the monthly manufacturing purchasing managers index data will be watched closely on Thursday.
In India, too, this week is important from the perspective of economic data. On 31 August, the first quarter gross domestic product (GDP) data will be released, which will throw light on the state of Indian economy. Any negative surprises will have severe implications. On the same day, infrastructure output data for July will be released. Monthly auto sales figure (August) and HSBC Markit manufacturing PMI (August) will be released on Thursday. Any optimism reflected by these data will be good news for the market, but will also raise the fear of a further rate hike in the forthcoming meeting of the Reserve Bank of India (RBI) in September.
Technically, the outlook for this week is cautiously positive. Nifty, on its way up, will meet resistance at 4,781 points. However, this will be a minor resistance and may give way to volume-led buying without much trouble. The next resistance, at 4,830 points, is important and may offer hurdles for the momentum. Here, the volumes will be more important because good volumes at this level with firm trend will be an indicator of further gains on bourses.
The next resistance is placed at 4,898 points, again a moderate resistance, followed by a strong resistance at 4,963 points. Readers should watch out for this resistance closely as this may be a trend decider in short term. On its way down, there is a major support at 4,712 points, which, if broken with good volumes, would mean bearish sentiments, with immediate strong support shifting to 4,628 points.
Among individual stocks, this week Bharat Heavy Electricals Ltd (Bhel), Rolta India Ltd and Jindal Steel and Power Ltd look good on charts. Bhel, at its last close of Rs 1,736.50, has a target of Rs 1,762 and a stop loss of Rs 1,698. Rolta India, at its last close of Rs 95.15, has a target of Rs 99 and a stop loss of Rs 90, while Jindal Steel and Power, at its last close of Rs 462.25, has a target of Rs 473 and a stop loss of Rs 447. From my previous week’s recommendations, Kotak Mahindra Bank Ltd, Dish TV Ltd and Ranbaxy Laboratories Ltd all missed their targets by small margin and later hit their stop losses.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at email@example.com