Markets across the world are eagerly waiting to see what Federal Reserve chief Ben Bernanke has to offer this week to jumpstart the US economy, which is showing signs of fatigue. Market expectations are huge, but it remains to be seen how aggressively the Fed moves on stimulus measures.
Investors also have an eye out on US mid-term elections; the markets want more Republicans in Congress because of a perception that they pursue more business-friendly policies than the Democrats.
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But clearly the event to watch is the two-day policy review meeting of the Federal Reserve ending on Wednesday; it holds the key to a revival of the world’s biggest economy.
Back home, the markets would cheer on Monday the quarterly results of Reliance Industries Ltd, which were better than expectations. Since Reliance Industries, which reported earnings on Saturday, is a market heavyweight, it is likely to push up indices that showed signs of having bottomed out on Friday.
No fireworks are expected, however, because investors will be on tenterhooks ahead of Tuesday’s policy review meeting of the Reserve Bank of India (RBI). The general expectation in the markets is that RBI will hike key interest rates by a quarter of a percentage point.
If RBI maintains status quo and leaves rates unchanged, there would be a rally led by financial stocks.
Before the RBI announcement, the markets would watch out for the HSBC Markit manufacturing purchasing managers’ index (PMI) due out on Monday.
The indicator has dropped for the past two months, and another decline would be a trigger for pessimism, especially after infrastructure output data showed subdued activity. In a way, the PMI this time would indicate some kind of economic trend. Monthly auto sale numbers and monthly cement dispatches data would also be watched closely. If these numbers remain buoyant, they could boost markets that are looking for a trigger to move up. Globally, markets are likely to remain edgy before the final outcome of the Federal Reserve meeting. The outcome of this meeting would decide the direction of stock markets that have rallied for the past two months. The week also will see crucial meetings of some key central banks including the Bank of Japan, Bank of England and the European Central Bank.
Critical economic indicators in the US this week will also guide market sentiment. They include the ADP employment report on Wednesday, weekly jobless claims data on Thursday and the non-farm payroll report on Friday.
The non-farm payroll data will shed light on the weakest pillar of the US economy. Expectations are that the report will show the addition of 60,000 jobs in October, compared with September’s loss of 95,000 jobs.
PMI data from China and European economies such as Germany, France and the UK will be also be critical.
Technically, Indian markets bottomed out on Friday for the short term and are poised to rise. Since there are a host of fundamental factors that are likely to overshadow the technicals, I would recommend that investors keep a simultaneous watch on fundamentals that swing sentiment. Purely technically, the Nifty is poised to gain on Monday with resistance expected at around 6,075 points, which would be a moderate, yet meaningful resistance level. A breach of this resistance would mean more gains. The next logical resistance level would come at 6,152 points. While it may not arrest northward momentum, the market may see some consolidation at this level. The next resistance level, which is expected at 6,212 points, would be very important and may set off a bout of volatility. On the downside, the Nifty has moderate support at 5,932 level followed by strong support at 5,856 points. If the Nifty falls below the latter level, it would be seen as a bearish signal.
Among individual stocks, this week Larsen and Toubro Ltd (L&T), Welspun Corp. Ltd and Axis Bank Ltd look good on the charts. L&T, at its last close of Rs 2,027.80, has a target of Rs 2,071 and a stop-loss of Rs 1,984. Welspun Corp., at its last close of Rs 248.75, has a target of Rs 259 and stop-loss of Rs 238 while Axis Bank, at its last close of Rs 1,471.05, has a target of Rs 1,498 and stop-loss of Rs 1,438.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org