Much on expected lines, key indices fell initially, but bounced back on bargain hunting at lower levels. The gains were not limited to India; global bourses also showed resilience in the face of lingering economic concerns. Positive data flow spurred the northward momentum.
In India, the markets took their cues from global economic indicators and showed signs of strength despite the fact that the prediction of a below-normal monsoon raised fresh concerns about the strength of an economic revival.
The India Meteorological Department on Wednesday predicted that total rainfall for the crucial June-September monsoon would be only 93% of the long-term average, coming in below normal for the first time in four years. The news created a temporary scare among investors.
However, hopes of a business-friendly Union budget, scheduled for 6 July, countered the concerns and led to a strong recovery.
By the end of the week, the monsoon advanced to central Indian region in Madhya Pradesh and parts of Uttar Pradesh. It has so far covered the southern and eastern regions and parts of western India, and there are hopes that the monsoon’s revival would minimize any adverse impact on agriculture.
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Globally, the decision of the US Federal Reserve to keep interest rates steady and positive comments by Fed chief Ben Bernanke on the economy boosted investor sentiment and fanned hopes that the US economy would soon be out of the woods.
Larger economic indicators including higher bond yields and concerns about the long-term inflationary impact tempered the optimism.
Asian markets would likely be heartened on Monday by reports that China’s gross domestic product will grow 8% in the third quarter from a year earlier and by at least 9% in the fourth quarter.
Annual growth in the first three months was 6.1%. Figures for the second quarter are due on 16 July.
In India, all eyes would be on the budget. I am expecting large investors to build their positions ahead of the fiscal package. However, this week will be critical for global markets because it will see the release of monthly data that will throw light on the state of world economies.
In the US, June’s job report would be very keenly watched. This number could have a huge impact on US and global stock markets as positive data would confirm an improvement in the US economy.
US non-farm payrolls are forecast to lose 355,000 jobs in June versus May’s slide of 345,000. The US unemployment rate is projected to jump to 9.6% in June from 9.4% in May.
The monthly non-farm payrolls data will come out on Thursday, instead of the usual Friday. The US markets will be closed on Friday, 3 July, for the long Fourth of July, or independence day, holiday weekend.
Apart from the jobs data, investors will look for economic indicators such as consumer confidence, the Institute for Supply Management’s June index on US manufacturing activity, and domestic car sales.
Back home, monthly auto sales and cement dispatches would be closely watched for an update on industry. The ABN Amro Manufacturing Purchasing Managers’ Index for June would be evaluated on Wednesday for more cues on the economy.
Other than that, the economic survey and railway budget would also be watched very carefully for cues on the government’s policies.
Technically, the markets are expected to gain on bargain hunting ahead of the budget and recovery in global bourses. For the Bombay Stock Exchange’s Sensex, the first resistance is likely to come at 14,896 points, followed by strong resistance at 15,286. If this resistance goes, then the next resistance is likely to come at 15,595.
Showering blessings? The Met department has predicted that total rainfall for the crucial June-September monsoon will be below normal for the first time in four years. This has temporarily scared investors. Punit Paranjpe / Reuters
On its way down, the first support is at 14,543, followed by 14,288 and strong support at 14,036. If the Sensex closes below this level, it would be a very bearish sign for the stock market.
For the S&P CNX Nifty, the first resistance is likely to come at 4,454 points, which, if broken, could push the Nifty to 4,514. If this level goes, the next target for Nifty would be 4,627. On its way down, the support for the Nifty would be first at 4,336, followed by 4,260 and 4,094 points, which, if broken, could signal a bearish phase.
Among individual stocks, Everest Kanto Cylinder Ltd, Reliance Infrastructure Ltd and Bhushan Steel Ltd look good on the charts. Everest Kanto Cylinder, at its last close of Rs207.55, has a target of Rs219 and a stop-loss of Rs194. Reliance Infra, at its last close of Rs1,264.50, has a target of Rs1,289 and a stop-loss of Rs1,234. Bhushan Steel, at its last close of Rs673, has a target of Rs693 and a stop-loss of Rs654.
From the previous week’s recommendations, HDFC Bank Ltd touched a high of Rs2,448, which was well above its target of Rs2,340. Dr Reddy’s Laboratories Ltd reached a high of Rs789, well above its target of Rs756, while Tata Consultancy Services Ltd hit a high of Rs404.40 and met its target of Rs394 very easily.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org