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GDP, March fiscal deficit data to set market trend

GDP, March fiscal deficit data to set market trend
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First Published: Sun, May 24 2009. 04 30 PM IST

Updated: Thu, Jul 02 2009. 03 44 PM IST
The euphoria over the United Progressive Alliance’s election victory had faded by the end of the week although optimism over the likely boost it will deliver to a slowing economy remains.
The strength of the initial stock market rally on Monday surprised everyone. My estimates of its magnitude were hugely dwarfed by the quantum leap.
The market retreat started on Wednesday afternoon and continued to drift lower on Thursday before rebounding on Friday. Investor sentiment remained cautiously optimistic at Friday’s close, with more gains likely this week before the market enters a phase of consolidation and technical correction.
A feel-good factor stemming from company earnings and some positive economic indicators pushed up equity prices although there were concerns such as the US budget deficit, the UK’s reduced ratings outlook and sharp fall of the US dollar against major currencies.
The US Federal Reserve delivered a more pessimistic assessment of the prospects for an economic recovery, which dented optimism that had underpinned the stock market’s advance.
Fizzling out? The market is showing signs of fatigue though there could be some more steam left in the rally. Punit Paranjpe / Reuters
The lowering of the credit rating outlook for the UK to negative by Standard and Poor’s on the ground that government debt could near 100% of gross domestic product (GDP) was a big setback for hopes of a global recovery because other economies could be in a similar situation.
Moreover, the weakness of the dollar and strengthening of the yen could spell trouble for export-dependent Japanese companies.
This week, any optimism about the US economy would be tested against a raft of economic data, including consumer confidence, home sales and GDP.
A bigger threat looming over the US economy is the potential bankruptcy of General Motors Corp. The General Motors bankruptcy has been long discussed, but if it happens, it would be a serious jolt to the US economy.
The rally in the Indian equity markets is clearly driven by liquidity rather than fundamentals and valuations. As soon as the liquidity fizzles out, there could be renewed selling as those concerns return to haunt investors.
This week, some critical economic data would shed light on the state of the Indian economy.
On Friday, 29 May, India’s GDP figures for the fourth quarter and the full fiscal year would be released. Other than the GDP numbers, data on the fiscal deficit for the month of March and infrastructure output data for April will also be watched closely for cues on theeconomy.
There is a lot of caution on economic fundamentals that should be reflected by the markets somewhere down the line this week.
Technically, the market is now showing signs of fatigue although there could be some more steam left in the rally. This means that there could be gains that might push the market higher in the early part of the week.
In terms of the Bombay Stock Exchange’s benchmark index, the Sensex, the first resistance for a rising Sensex would come at 14,098 points, followed by 14,208.
Both resistance levels are of moderate intensity and if the Sensex attempts to breach them on higher volumes, it may do so without muchdifficulty.
However, there is strong resistance at 14,400 points, which the Sensex would find difficult to cross. If it does so, investor sentiment would turn positive and the Sensex would then aim to test its next resistance at 14,514 points. Following this resistance, the Sensex would attempt to test its strongest resistance at 14,930 points.
On its way down, the Sensex would test its support at 13,816 points, followed by 13,698 and strong support at 13,604. If the last support level is broken, the outlook would turn negative and the Sensex would aim for support at 12,914 points.
In terms of the S&P CNX Nifty, the resistance levels would be 4,265, 4,317, 4,414 and 4,512 points, and support levels 4,188, 4,151 and 4,031 points, respectively.
Among individual stocks, Bajaj Hindustan Ltd, HDFC Bank Ltd and Jindal Saw Ltd look good on the charts.
Bajaj Hindustan, at its last close of Rs133.35, has a target of Rs141 and a stop-loss of Rs124. HDFC Bank, at its last close of Rs1,369.85, has a target of Rs1,399 and a stop-loss of Rs1,332. Jindal Saw, at its last close of Rs362.35, has a target of Rs377 and a stop loss of Rs348.
All the recommendations of last week met their targets on Monday itself.
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, May 24 2009. 04 30 PM IST