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Lack of confidence weighs on markets

Lack of confidence weighs on markets
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First Published: Mon, Feb 07 2011. 12 30 AM IST
Updated: Thu, Feb 10 2011. 12 31 AM IST
It was a yet another bad week on the bourses as benchmark indices posted losses on persistent selling by foreign funds and traders. The reasons for the fall were not convincing enough to justify the intensity, but factors such as surging inflation, fears of monetary tightening and rising oil prices could be some of the reasons. Apart from logical reasons, however, I feel that there is a sore sort of a lack of confidence, and selling by foreign funds has been blown out of proportion, which is causing unwarranted panic among retail investors.
I agree that despite the correction, the valuations of other emerging economies such as Russia are lower. However, given the projected rate of economic growth of India, I think the valuations are now at attractive levels to attract investment with a long-term perspective.
Having said that, I do not mean that the markets have no downward potential, as after the breach of critical support levels of benchmark indices, the downward potential has widened and markets have become more volatile. But one can’t necessarily enter the market at the bottom and exit at the top, and it makes sense to plan a staggered approach to long-term investment, which means buying on declines.
However, for short-term traders, good and consistent opportunities would emerge once the markets consolidate. Till the time markets are witnessing extreme volatility, the risk perception in the short term remains high. So in the current market scenario, investment and trading strategy is more important than the timing.
The trend on Indian bourses is just opposite that of global exchanges as, except Brazil, all major global markets posted gains over the week.
Asian majors though remained closed in the later part of the week, but the overall trend has been positive. The US economy gathered further momentum and employment data, which was the weakest indicator of US economy, showed a healthy trend. Private sector employment and non-farm payrolls showed growth, though the increase in non-farm payrolls fell short of expectations.
However, the sharp fall in unemployment rate to 9%—the lowest since April 2009—buoyed sentiments. Despite the conflicting signals in the labour department’s report on Friday, economists agreed a job market recovery was proceeding apace, if not gaining speed. The drop of 0.8 percentage point in unemployment rate is the biggest two-month decline since 1958. Even the European data during the last week was positive, indicating improving health of the European economies.
The economic calendar is light and some pointers, including weekly jobless claims and preliminary reading of consumer sentiments, would be highlights of this week.
Most important, the developments in Egypt will be closely watched and if the crisis heads towards resolution, it would boost global equities.
Interestingly, oil prices cooled towards the end of the week despite the crisis in Egypt. Nymex crude at $89.03 and brent crude below $100 is a good sign for global markets; any further fall would be well received by global markets. The Indian markets are looking weak despite the sharp fall on Friday, primarily due to the southward momentum, which has nothing to do with fundamentals. It is purely driven by sentiments, and the market would need a reason to bounce, which can be technical.
Till such reason emerges, the Nifty index on the National Stock Exchange may test strong support at 5,248 points during the week. However, before this level, there is an important support at 5,341 , followed by another support at 5,291.
On its way up, there is an important resistance at 5,441 points. If this level is breached with convincingly high volumes, the outlook would improve.
However, caution would prevail unless high volumes are maintained with northward momentum. The next important resistance level would come at 5,497 points, which will be watched closely, as a close above this level would boost sentiments. The next resistance at 5,541 could give market the much-needed direction.
Among individual stocks this week, HDFC Bank Ltd, Aban Offshore Ltd and Alstom Projects India Ltd look good on the charts. HDFC Bank, at its last close of Rs 2,019.35, has a target of Rs 2,054 and a stop loss of Rs 1,174; Aban Offshore, at its last close of Rs 659.55, has a target of Rs 674 and a stop loss of Rs 639; Alstom Projects, at its last close of Rs 582.25, has a target of Rs 596 and a stop loss of Rs 564.
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: Mon, Feb 07 2011. 12 30 AM IST