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Key economic data will set the pace for stock markets this week

Key economic data will set the pace for stock markets this week
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First Published: Sun, Mar 01 2009. 10 22 PM IST

Updated: Sun, Mar 01 2009. 10 22 PM IST
Reconcile with the inevitable—that’s what the market seems to be learning. During the last week, there were two major developments that will have a bearing on the long-term prospects of the stock market. The first was the beginning of downgrading of India’s sovereign ratings by agencies led by Standards and Poor’s.
The second, which came as a shock, pertained to the 5.3% growth in India’s gross domestic product, or GDP, in the third quarter. This was much below expectations and is likely to trigger a further lowering of India’s GDP estimates for 2009-10. Till some days ago, the estimates for the next fiscal year were being quoted around 6%.
Following the dismal third quarter numbers, Moody’s quickly lowered its estimates to below 5%. The agency said a recovery seems far from sight as the fiscal stimulus does not appear strong enough to foster a rebound. So clearly, last week’s developments have only added to India’s gloomy growth prospects.
On the positive side, however, these developments did not trigger any significant downside and after Monday’s sharp fall, the markets moved up twice, sharply cutting intra-day losses and finally, the week ended with a moderate gain of around 0.6% over the previous week.
Economy boosters: The Reserve Bank of India building in New Delhi. The lowering of interest rates and cash reserve ratio is almost a given in the current scenario, and may give the markets a much-needed boost. Ramesh Pathania / Mint
The Indian markets’ performance, though, was not the best in Asia as Taiwan and Japan did fairly well last week. India, however, fared reasonably compared with the US as the Dow fell 4% for the week after breaking through its November lows.
The markets in India would be put to the test once again this week, as key data including the ABN Amro Manufacturing PMI for February and India’s trade deficit for January would be released on Monday.
This will be followed by infrastructure output for January on Wednesday. Since not much is expected on positive side, the markets may not react severely, though it may dent sentiments considerably. Any positive surprises, however, will be met with enthusiasm.
Weekly inflation, which will be released on Thursday, is likely to remain insignificant as a further fall will indicate contraction of demand.
However, the big daddy of all economic events this week will be the much awaited move by the Reserve Bank of India to lower the interest rate and reduce the cash reserve ratio. This move looks almost certain in the given economic scenario and hence may give market a well-deserved boost.
Globally, also, this week will be very critical, as the US economy will see a raft of data that is expected to highlight that the recession-hit economy is worsening.
Among the reports, non-farm payrolls for February will shed light on the labour market, with analysts expecting unemployment to reach 7.9%. Other than this, retail sales will provide insight into how consumer spending is holding up. Other data include weekly initial jobless claims and factory orders. It may, therefore, be said that this week the markets will dance to the tune of economic data, as there is no clarity regarding the trend.
Technically, though, the situation does not look as bad as it is reflected fundamentally and just like last week, this week too the signals are mixed and one prominent technical study suggests that if the Sensex closes above 8,996 points on any day of this week, then there would be a sustained rally on the bourses with a brief disruption at 9,112 points, which would be a critical resistance level.
This level would be important as a significant pull-back from this level would indicate weakness, but a convincing close above this level with high rising volumes would mean continuation of the rally.
The next resistance for the move up would come at 9,308 points, which would also be a critical resistance level. If the Sensex consolidates around this level or faces strong profit selling, then this would indicate termination of the rally.
However, if Sensex closes above this level with good volumes, then it would come across as very strong resistance at 9,371 points, which by all chances would be the termination point of the rally and this level should see emergence of profit selling.
On its way down, the Sensex would see its first support coming at 8,730 points, which would be a moderate support only, and if falling volumes are higher around this level, then it may not offer strong ground to the falling Sensex.
However, the next support level at 8,627 points would be a critical support level as it has the capacity to decide the short-term trend on bourses. A convincing close below this level should be considered a very bearish signal meaning further fall on bourses, with much brighter chances for the Sensex to test new recent lows in the coming weeks.
Prior to that, however, there would be a moderate support at 8,536 points followed by a strong support at 8,301 points.
For the S&P CNX Nifty, the picture at this point looks good and suggests the trend is more in favour of the bulls.
However, one should note that the weak global trend, particularly the weak closing on the US bourses on Friday, may affect the technical findings as it might force trading to resume on a weak note.
However, technically, the Nifty is giving signals that the level of 2,798 points is going to decide the trend on the bourses. If the Nifty closes above this level with high rising volumes, then there would be chances of a rally on the bourses.
On its way up, the Nifty would face its first resistance at 2,869 points, which would be a moderate resistance only. However, there would be an immediate but very critical resistance at 2,890 points, which might trigger profit selling on the bourses. The chances are the Nifty would face very strong resistance and would find it hard to close above it. However, if it does, then it would find a very strong resistance at 2,923 points, which might signal the end of this uptrend.
On the downside, the Nifty is likely to get strong support at 2,702 points. It may, however, not hold ground because of intense selling and a fall below this level would push the support at 2,661 points. This would be an important support level and a close below this level would mean very negative sentiments leading to a further fall.
Among individual stocks, this week, Adlab Films Ltd, Bank of India and Kotak Mahindra Bank Ltd look good on the charts.
Adlab Films at its last close of Rs164.20 has a target of Rs174 and a stop-loss of Rs152. Bank of India at its last close of Rs225.55 has a target of Rs237 and a stop-loss of Rs212. And Kotak Mahindra Bank at its last close of Rs259.45 has a target of Rs272 and a stop-loss of Rs242.
From last week’s recommendations, Bharti Airtel Ltd touched a high of Rs660 and met its target of Rs657 easily. Cairn India Ltd hit a high of Rs168, which was well above its target of Rs160. Great Offshore Ltd, however, touched a high of Rs262.50, but missed its target of Rs272 and is still a valid recommendation.
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, Mar 01 2009. 10 22 PM IST