Credit policy, corporate earnings to watch for

Credit policy, corporate earnings to watch for
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First Published: Sun, Apr 19 2009. 09 20 PM IST

Updated: Sun, Apr 19 2009. 09 21 PM IST
The rally continued on the bourses for the sixth straight week with the benchmark Bombay Stock Exchange’s Sensex gaining a little over 2% over the week. The markets started off on a positive note but witnessed profit selling towards the end, mainly on account of technical correction. This was long overdue as the bourses had witnessed a one-way trend over the last six weeks. There was also caution in the markets with the beginning of the earnings season that started last week with the announcement of Infosys Technologies Ltd’s numbers. The game of hits and misses would pick momentum this week with some critical numbers lined up for release. However, this week the initial focus would be on the meeting of the Reserve Bank of India (RBI), which would take up the credit policy for the fiscal year.
Rising optimism about the US and global economies is driving the markets higher. Last week, the US economy gave more prominent signals that it is on its way to recovery and a host of positive earnings impressed the markets. However, earnings scheduled for release this week would test the mettle of the rally as there is a lot of caution despite the impressive start.
Cautiously optimistic: Markets started off on a positive note but witnessed profit selling towards the end, mainly because of a technical correction. Madhu Kapparath / Mint
Last week, China posted its slowest quarter of growth since records began in 1992 but economists saw positive signs in its quarter-on-quarter performance. Hopes that China’s slowest quarter on record could mark a bottom to the global financial crisis were echoed in Europe on Thursday where a fall in car sales eased. There were positive comments in Europe as well a day after the US Federal Reserve’s monthly Beige Book said recession may be nearing an end, citing moderation in the pace of economic decline and signs of stabilization in some sectors.
Back home, the markets are likely to resume trading on a cautiously optimistic notes, which means that a rise would be seen with caution and there may not be buying frenzy and higher levels could attract profit selling. There would be no big fall either as a lot of investors are waiting on the sidelines for the right opportunity to enter the market. Moreover, there are lots of shorts still maintained in index futures on hopes of a strong technical correction. This will actually restrict the big fall as short covering would be seen at every fall.
Technically, there is still some steam left in the market before it moves into consolidation phase. However, extraordinary factors such as RBI’s credit policy meeting would weigh on sentiments. As of now, there is a good amount of uncertainly reflected in the charts, though the undertone remains cautiously positive. The Sensex is likely to start on a positive note but the momentum would be strictly dependent on resistance and support levels. On its way up, the Sensex should find its first important resistance at 11,167 points, which is a moderate resistance level ,but if broken with good volumes would strengthen the positive sentiment. The next resistance would be at 11,286 points, which would also be a moderate resistance level. But there would be a critical resistance level at 11,369 points. If the Sensex closes above this level with good volumes, then it would enter the next level of its rally and would gain further up to 11,770 points as this would be the next critical resistance level.
On its way down, there is an important support level at 10,901 points. If the Sensex closes below this level then negative sentiments would cloak the market. The next support level would come at 11,717 points, which would be a moderate support level, followed by a strong support at 11,566. This level should offer a very strong base to a falling Sensex, but if it goes then the sentiment would turn extremely negative with the support slipping to 10,171 points.
In terms of S&P CNX Nifty, the first moderate resistance would come at 3,433 points, followed by a strong resistance at 3,511 points, which would be a critical resistance. If the Nifty closes above this level, then there would be a rally, which would extend up to 3,665 points.
On its way down, the Nifty would test its first support at 3,355 points, which is a moderate support. The next support would come at 3,344 points, followed by an important support at 3,301 points.
Among individual stocks, HDFC Bank Ltd, Lanco Infratech Ltd and Bharat Heavy Electricals Ltd (Bhel), look good on the charts. HDFC Bank at Rs1,071.90 has a target of Rs1,096 and a stop-loss of Rs1,046. Lanco Infra at its last close of Rs212.25 has a target of Rs228 and a stop-loss of Rs197. And Bhel at its last close of Rs1,656.30 has a target of Rs1,696 and a stop-loss of Rs1,622.
From the previous week’s recommendations, Reliance Communications Ltd touched a high of Rs240.80, which was well above its target of Rs224. Hindalco Industries Ltd touched a high of Rs66.70 and easily met its target of Rs65. Kotak Mahindra Bank Ltd gained about 19% during the last week; needless to say, the stock met its target very comfortably.
 Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Sun, Apr 19 2009. 09 20 PM IST