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All eyes on RBI’s policy review meet

All eyes on RBI’s policy review meet
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First Published: Sun, Jul 24 2011. 10 04 PM IST

Updated: Sun, Jul 24 2011. 10 04 PM IST
Much on expected lines, the benchmark indices traded cautiously positive and ended the week up around 1.5% over the previous week’s close. The markets lacked momentum as well as conviction ahead of the Reserve Bank of India’s (RBI’s) crucial policy review meeting, and also due to turmoil in Europe and the US due to mounting debt-related crisis. There was some relief from Europe following the second bailout package to Greece, which has provided some cooling period for the European crisis. However, dilemma continued in the US as the 2 August deadline for raising the debt ceiling limit is approaching and, so far, there has been no resolution of the US debt stalemate.
However, a gain on the US Nasdaq and S&P 500 and limited losses in the Dow Jones on Friday, mainly due to sharp losses in Caterpillar Inc., signalled that markets are hoping that there would be a resolution to the stalemate much before the deadline, and default by the US will be avoided. The US Congress slugged it out on Saturday and efforts are still under way to hammer out a deficit deal and assure investors before Asian markets open that Americans can deal with this situation. If there is no deal early this week, then some panic is likely to creep in among investors across the globe.
However, an agreement on raising the debt ceiling limit is likely to trigger a rally on the global bourses as the earnings season has been good so far globally. Around 30% of the S&P 500’s $12.3 trillion market cap have reported earnings so far. They have outpaced consensus estimates by 3.8%, and only 7% have missed estimates, while in China, of the 51 large corporations that have announced their first-half earnings, 34 reported positive growth; four swung to a profit from a loss, and the remaining had seen earnings drop from a year earlier. So, on the whole, globally, the markets are looking for a breakout. If the deal is done in the US, there would be positive trend, while in the absence there could be a knee jerk reaction on global bourses.
Back home, the undertone on bourses remains cautiously positive as investors are keeping their fingers crossed over the outcome of the Reserve Bank of India’s policy review meeting. More than the final outcome, the tone of Reserve Bank governor will have a major impact on the market. Signs of slowing of rate hike cycle would be welcomed by market, but hawkish tone could push the market down for a day or two.
Although fundamentally and logically, the market sentiments are correct, technically I am seeing an upward movement in the making, and technically, there is a rally of around 120 points in the Nifty index on the National Stock Exchange early this week. Despite understanding the importance of RBI’s meeting, I am more confident about the technical aspect.
So this week the Nifty has its significant resistance at 5,758, though there would be intermittent resistance at 5,648 and 5,678 points. But these being minor resistance would not threat the technical outlook.
There could be some consolidation around 5,737, but this, too, is not likely to pose any serious threat to a rising Nifty. Though the resistance at 5,758 will be tough and see some profit taking, unless selling comes with good volumes, the trend will not weaken and chances of the Nifty scaling past this level will remain bright.
If the Nifty crosses this level with good volumes and closes above it, the next resistance will come at 5,785 followed by a yet another strong resistance at 5,842 points. On the downside, the first support is likely to come at 5,591 points, which is likely to be a good support. However, it may not withstand any big-ticket selling led by good volumes.
If this level goes, the next support will come at 5,733, followed by a strong support at 5,491 points. If this level goes, the outlook of the Nifty will turn weak with more fall in the offing.
Among individual stocks this week, Larsen and Toubro Ltd, Yes Bank Ltd and HDFC Ltd look good on the charts.
L&T, at its last close of Rs1,825.50, has a target of Rs1,856, and a stop-loss of Rs1,791.
Yes Bank, at its last close of Rs 329.10, has a target of Rs 342, and a stop-loss of Rs 317, while HDFC, at its last close of Rs 706.05, has a target of Rs 720 and a stop-loss of Rs 691.
From my previous week’s recommendations, ACC Ltd and Hindalco Industries Ltd met targets, but IDFC missed it marginally.
Illustration by Shyamal Banerjee/Mint
Vipul Verma is chief executive officer, moneyvistas.com. Comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Sun, Jul 24 2011. 10 04 PM IST