Poor earnings unveiled by big US banks last week, on top of a string of weak economic indicators, plunged the US stock markets into gloom, reinforcing worries that the strength of recovery in the world’s biggest economy had been overrated.
Investor sentiment was also badly hit by President Barack Obama’s proposals on Thursday not to allow banks to own, sponsor or invest in hedge funds for proprietary profit.
Proprietary trading, which means the use of a company’s own money to make bets on the markets, has been a profit engine for some big US banks. Obama’s proposals led to a fresh round of selling on US markets at a time when bank earnings are already under pressure. Uncertainty about the Senate’s confirmation of another term for US Federal Reserve chief Ben Bernanke also rattled US markets, which had their worst three-day slump in 10 months.
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Policy curbs by China to cool galloping economic growth also weighed heavily on global markets. China’s gross domestic product growth accelerated in the fourth quarter of last year to 10.7% from 8.9% in the third, rasing concerns about overheating.
Fiscal curbs are not likely to arrest the momentum of Chinese economic growth.
In India, no major economic indicators were due for release last week. Global economic uncertainties and jitters ahead of the Reserve Bank of India’s monetary policy review on 29 January, however, led to a heavy sell-off on local markets despite the release of better-than-expected corporate earnings.
This week is likely to begin on a choppy note on a mix of global and domestic concerns. The Chicago Board Options Exchange Volatility Index, a barometer of anxiety on Wall Street, last week posted its biggest three-day percentage gain in almost three years, rising at least 20% on Friday alone.
Treading with caution: A file photo of trading at the New York Stock Exchange. Economic data, due to release in the US this week, would be watched closely by investors to gauge the strength of economic recovery. Daniel Acker / Bloomberg
US companies due to announce earnings this week include Apple Inc., Microsoft Corp. and Procter and Gamble Co.; investors will also keep an eye on the Fed’s statement on the US economy on Wednesday.
Data due to be announced in the week include home sales and the government’s first reading of the US gross domestic product for the fourth quarter. The numbers would be watched very closely by investors to gauge the strength of US economic recovery.
Back home, a holiday-shortened week is likely to be action packed, dominated by the monetary policy announcement. Technically, the markets are likely to bottom out and consolidate within a range.
Nifty, on its way down, is likely to test its first support at 5,019 points, very near last week’s closing.
Any drop below that level would push the support to 4,936 points. If the index declines below this level, there could be further drops, with the bottom seen at around 4,811. On its way up, Nifty will face resistance at 5,086 points, a critical level. A comfortable breach of this level would mean further gains as the resistance would then shift to 5,171 points.
In terms of the Bombay Stock Exchange Sensex, the first support is expected at 16,791, followed by 16,595, with rock-bottom seen at 16,111. On its way up, the first resistance is at 17,010 points with the trend being decided at 17,312.
Among individual stocks, Shree Renuka Sugars Ltd, Jindal Steel and Power Ltd and Reliance Infrastructure Ltd look good on the charts. Shree Renuka Sugars, at its last close of Rs221, has a target of Rs232 and a stop-loss of Rs212. Jindal Steel and Power, at its last close of Rs674, has a target of Rs688 and a stop-loss of Rs661. Reliance Infra, at its last close of Rs1,058.60, has a target of Rs1,084 and a stop-loss of Rs1,036.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org