A lot happened last week, which brought little cheer to the equity markets. The week started on a positive note as a favourable election outcome in Greece raised hopes of some stability in the euro zone, but this was immediately followed by huge disappointment over Reserve Bank of India’s (RBI) decision to maintain status quo over its monetary policy, which was broadly expected to loosen up a bit to pep up the sagging Indian economy. RBI also raised concerns about the options with the Indian government to deal with the weakening Indian economy. As the week progressed, rising bond yields in Spain and Italy took over the euphoria over the Greek election results and equities globally started tumbling again.
For India, there was more in store as Fitch Ratings became the second credit agency after Standard and Poor’s to threaten India’s investment-grade status by cutting the sovereign outlook to negative. The markets did not react negatively to this, as this raised hopes that some fiscal stimulus could be on the way to contain the economic turmoil. Though nothing as such came up during the week, the ever-falling rupee, which declined to its historical low of 57.32 to a dollar on Friday before recovering partially to settle at 57.12, jolted the government, and the finance minister announced measures would be unveiled on Monday to arrest the slide. The markets will keenly watch the announcements for cues. The weakness in the rupee is clearly evident, and unless the government announces some concrete steps on Monday, it will be really difficult to contain the fall.
On the positive side, JP Morgan upgraded Indian equities to overweight from neutral, citing factors, including historic valuations, expectations for monetary stimulus, lower oil prices and a weak rupee. The investment bank, in a 21 June report, said it was overweight on private banks, information technology services and healthcare, but was underweight on consumer discretionary, energy and materials. The other positive for the Indian markets was the slumping crude oil prices.
Illustration by Jayachandran/Mint
Globally, the markets remained edgy after the US Federal Reserve disappointed investors with the size of its US bond purchases. The markets were expecting some road map for the third round of quantitative easing Later, Moody’s downgrade of the world’s major banks led to the rise in dollar against a basket of major currencies. Equities are likely to trade on cautiously positive notes. This week, the rupee and crude prices are likely to rule sentiments. However, the expiry of derivative contracts for June on Thursday might add some volatility. Also, the ruling of the Competition Commission of India on whether to fine tyre firms over allegations of price fixing will also be watched.
Globally, the economic calendar is hectic. The key economic data in the US include new home sales data on Monday, building permits, Richmond Fed composite index, consumer confidence on Tuesday, US durable goods orders for May, midwest manufacturing index for May and pending home sales on Wednesday, first-quarter gross domestic product data, weekly jobless claims on Thursday and personal income data, Chicago Purchasing Mangers’ Index and Michigan sub-indexes will be closely watched on Friday.
Technically, the markets are looking positive and are likely to gain further. On its way up, the benchmark Nifty index on the National Stock Exchange is likely to see the first resistance at 5,191, which is likely to be a good level. If it settles above this with good volumes, the outlook in the short term will improve substantially as the new target will shift to 5,348 points. The target does not mean the Nifty will necessarily touch this level as there are many crucial resistance levels en route. The Nifty, on crossing 5,191, will see the next resistance at 5,256. If the volume-led rise pushes the Nifty above this, the next resistance will be 5,295, which is a moderate resistance level, but if crossed, will make way for a target of 5,348 points.
On its way down, the Nifty has its first support at 5,091, which is an important level; until it hovers above this, there will be no danger to the northward momentum. However, if it closes below this, the next key support will be 5,041. This is an important support level and should be watched closely. A fall below this with good volumes or a comfortable close below this will mean negative sentiments with significantly lower key support.
This week, Dena Bank, Tech Mahindra Ltd and Titan Industries Ltd look good. Dena Bank, at its last close of Rs 96.65, has a target of Rs 100, and a stop-loss of Rs 92. Tech Mahindra,?at?its?last?close of Rs 688.35, has a target of Rs 702, and a stop-loss of Rs 671. Titan, at its last close of Rs 221, has a target of Rs 28, and a stop-loss of Rs 213. From my last week’s recommendations, Reliance Infrastructure Ltd and IndusInd Bank Ltd met targets. Bharat Forge Ltd missed it by a whisker.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org.
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