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Markets will keep keen eye on RBI meet, further consolidation likely

Markets will keep keen eye on RBI meet, further consolidation likely
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First Published: Sun, Oct 25 2009. 11 23 PM IST

Updated: Sun, Oct 25 2009. 11 23 PM IST
Key indices fell around 3% last week on profit-selling by funds and traders in the absence of positive economic triggers and amid uncertainty on US and European stock markets. The Indian markets’ performance contrasted with that of other Asian bourses, which were given a leg-up by rising commodity prices and a weak US dollar. Chinese markets rose 4.4% and Hong Kong gained just above 3%.
This week, the markets are likely to trade in a range and consolidate further, with a watchful eye on the monetary policy statement by the Reserve Bank of India (RBI) on Tuesday. The statement will be important as a signal on the direction of interest rates. Although the central bank is not likely to raise rates, any indication that it would tighten monetary policy in the short term could be a negative trigger for the stock markets.
Another important indicator would be infrastructure output for September, scheduled for release on 30 October. If the data springs an upside surprise as it did for August, it would be a big positive for the markets. The markets would also take their cues from corporate earnings, which have generally exceeded expectations. The dollar will remain in the limelight; it has started showing signs of bottoming out in the short term. The US unit’s recent strength against the pound after data showed the UK’s economy posted its sixth straight quarter of contraction, the longest stretch on record, and better-than-expected US housing data, are the first indications of a turnaround in the dollar. This is a negative trigger for stock markets, because it would check the rise in commodity prices that has aided the market rally.
Another factor which should be crucial this week is the Baltic Dry freight index, a measure of shipping costs for commodities, including metals, grains and fossil fuels. This index gained 11.5% over the last week and around 40% so far this month. A positive trend in this index would be an indication that global demand for commodities continues to be robust.
Globally, this week is crucial to gauge the strength of the US economy, after the negative surprise in the UK. According to estimates, the US economy grew at an annual rate of 3.2% in the third quarter, its first quarterly expansion in more than a year.
US gross domestic product data is scheduled for release on Thursday. If the numbers exceed expectations, the markets would cheer; conversely, if the numbers lag expectations or even just meet expectations, there could be a selloff on global markets.
Other economic indicators due from the US include October consumer confidence, August home prices, September new home sales and durable goods orders and the latest weekly jobless claims.
Strong momentum: The National Stock Exchange building in Mumbai. The Nifty on Monday will face its first resistance between 5,035 points and 5,056 points, which is a crucial band for the market.
Back home, technically, the markets are poised for some initial gains in the week. That’s despite the fact that the dollar strengthened on Friday, US markets fell sharply and Asian and European bourses are likely to resume lower on Monday.
My technical analysis suggests that the Nifty on Monday would face its first resistance between 5,035 points and 5,056 points, which is a crucial band for the market. Any retreat from this level would have a negative short-term impact and mean a pullback to around 4,962, which offers good support. If the Nifty breaks this resistance band, the market undertone would improve; there would be further gains, as the Nifty would test its next resistance at 5,111 points. This level is moderate resistance and may not arrest the northward momentum. A comfortable breach of this level would push the Nifty to its next resistance at 5,178 points, which is a key level; if this level goes, the Nifty would aim to touch levels such as 5,254 points.
On its way down, the first support for the Nifty is at 4,962 points, followed by the next and important support at 4,912. If this level goes, the Nifty would seek very solid support at 4,878 points.
In terms of the Bombay Stock Exchange’s Sensex, the first resistance is at 17,016 points, which is a crucial level. If the Sensex crosses this level on good volumes, the next resistance would come at 17,258-17,286, which is a strong band; a close above this level would be positive in the short term and mean more gains, with the next resistance expected at 17,477 points— which, if broken, would mean new highs for the Sensex. On its way down, Sensex would seek support at the 16,735, 16,622 points levels. These are very important support levels, and a breach of the latter would mean more declines.
Among individual stocks, this week ACC Ltd, 3i Infotech Ltd and Reliance Communications Ltd look good on the charts. ACC, at its last close of Rs763.45, has a target of Rs781 and a stop loss of 746. 3i Infotech, at its last close of Rs93.70, has a target of Rs99 and a stop loss of Rs89. Reliance Communications, at its last close of Rs229.65, has a target of Rs243 and a stop loss of Rs221.
From the previous week’s recommendations, Alstom Projects India Ltd gained sharply and met its target easily. Welspun Gujarat missed its target by a very small margin and ACC continues to be a recommendation this week.
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, Oct 25 2009. 11 23 PM IST