I had anticipated the markets would rise last week, but they fell in range-bound trading—mainly due to lack of triggers, and caution ahead of the 3 May meeting of the Reserve Bank of India (RBI), in which interest rates are likely to be hiked by 25 basis points (0.25 percentage point). Much of it has already been discounted and the markets are set to absorb the hike, but there is still caution over RBI’s tone, which is likely to be more hawkish.
Such caution is overplayed as none of the fears—inflation or tight monetary policy—is new. Inflation is going to be around for several months, at least. Moreover, because of rising crude prices, oil companies may also hike fuel prices shortly, further complicating the inflation situation. From the market’s perspective, even this situation is discounted and the likely rate hike by RBI will counter it. But the markets may continue to worry about it.
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Despite all this, the underlying sentiment remains bullish as the broader trend in the markets is positive. The results season has been good so far. The prediction of a normal monsoon is another boost as it allays fears about supply-side constraints, which is one of the key factors behind inflation.
Global factors have also been broadly positive. The US Dow Jones touched a new three-year high while the Nasdaq touched a 10-year high during the week. US benchmarks also posted their best month in the year 2011. European bourses traded positive, with Germany’s DAX registering a weekly gain of 3.66%, the best in the world. Asian bourses, though, continued to trade weak—with China being the top loser followed by India. Japan was the noticeable exception, closing the week with a 1.69% gain.
The global economic scenario remained upbeat, despite US quarterly gross domestic product (GDP) growth slowing more than expected in the first three months of the year. Growth was pegged at 1.8% compared with the forecast of 2%. But, on the bourses, positive results from a number of major corporations more than made up for the worry over GDP growth. Concerns about euro zone inflation, reports of fall in German retail sales and soaring unemployment in Spain remained, but the broader economic outlook was positive.
The Federal Reserve’s promise to keep liquidity cheap will continue to boost US equities. But this week, the focus would be reports on employment, a key concern for the US economy. The private sector ADP (Automatic Data Processing Inc.) employment report would be watched closely on Wednesday, weekly jobless claims on Thursday and, most importantly, non-farm payrolls on Friday. These may influence the US bourses as the earnings seasons is gradually winding down. Also due this week is the ISM (Institute for Supply Management) manufacturing data and domestic car sales on Monday, and the ISM services data on Wednesday.
Back home, HSBC Manufacturing PMI (purchasing managers’ index) and India’s trade figures would be released on Monday, RBI’s policy review meeting is scheduled on 3 May, India’s HSBC Services PMI would be released on 4 May and would throw light on the services sector.
I still hold my view that the uptrend on bourses would remain intact unless Nifty closes below the 5,712-5,691 band. If that happens, positive sentiments would be seriously affected and levels such as 5,500 points could become a possibility. On its way up, the Nifty is likely to see first resistance at 5,793, which could see a minor consolidation. The next resistance would be 5,865, another moderate resistance level that may not pose a threat to the rising trend, despite some profit booking. The third resistance, at 5,914, would be critical, and watched very closely; a break above this with good volumes would mean the beginning of the next leg of the rally on the bourses, which would take the Nifty above 6,100 points.
ACC Ltd, Maruti Suzuki India Ltd and ICICI Bank Ltd look good on the charts this week. ACC, at its last close of Rs 1,112.80, has a target of Rs 1,136, and a stop-loss of Rs 1079; Maruti Suzuki, at its last close of Rs 1,317.65, has a target of Rs 1,348, and a stop-loss of Rs 1,271; and ICICI Bank, at its last close of Rs 1,114.45, has a target of Rs 1,136 and a stop-loss of Rs 1,081.
All the three stocks are, however, sensitive to the economic indicators due this week. ACC is sensitive to monthly cement sales data, Maruti Suzuki is sensitive to the monthly auto sales numbers of the company, while ICICI Bank is sensitive to the outcome of RBI’s meeting. Thus, there is a certain amount of uncertainty involved.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org