Earnings, monsoon to dominate sentiment

Earnings, monsoon to dominate sentiment
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First Published: Sun, Jul 12 2009. 09 34 PM IST

Updated: Sun, Jul 12 2009. 09 34 PM IST
The Union Budget failed to live up to market expectations. The Budget lays down the road map for economic reforms; however, this Budget failed to address the issue adequately, triggering a fresh round of selling. Poor monsoon forecasts and concerns over the global economic recovery added to the selling pressure.
The fact is that except for the high fiscal deficit, there is nothing fundamentally wrong with the markets or the economy. However, the undertone on the bourses following the Budget was so weak that it even ignored better-than- expected earnings numbers from Infosys Technologies Ltd and industrial and manufacturing output for the month of May, which were above market expectations.
Globally, the situation was not as bad as many countries posted gains on the bourses over the week. Moreover, there were positive comments from the International Monetary Fund over a global economic recovery.
Back home, there are no major economic indicators due this week. However, the earnings calendar is quite busy. More importantly, the progress of the monsoon will be watched very closely this week as analysts will try to quantify the loss due to delayed and scanty rains. Both these factors are likely to dominate sentiments.
Technically, the market is showing a lot of volatility with a downward bias, which means that there is still downward potential left in the market and they would fall initially on persistent short-selling by traders. However, I think the current trend is not long-lasting. The medium-term key technical indicators are in a downward crossover mode, which sufficiently justifies the downward movement on the bourses.
The benchmark Sensex index is likely to test its first support at 13,459 points, which is very close to Friday’s close. Since this support is moderate, it may go easily, but a breach would be very crucial as the next support level would come at 13,112 points. This will be a reasonably strong support level but may not be strong enough to withstand the selling pressure and the Sensex could easily slip to 12,971points if this level goes. However, there is a very strong support at 12,454 points, which is likely to offer the bottom to the current weakness.
On its way up, the Sensex has its first important resistance at 14,030 points, which if broken could improve sentiments. If the Sensex consolidates above this level and sees good volumes, then the index could move up further with a resistance at 14,353 points in sight.
However, if it closes above this level with good volumes, then the trend on the bourses would once again turn positive.
On the National Stock Exchange, the S&P CNX Nifty has its first meaningful support at 3,918 points, followed by next support at 3,856. A fall below this level could push the Nifty down to 3,787 points. On its way up, the Nifty has an important resistance at 4,042 points, which if broken would improve sentiments, following which the next resistance will come at 4,089 points. This will be a moderate resistance only. The Nifty will have an important resistance at 4,144 points, which if broken would change the trend on the bourses.
Among individual stocks, Cipla Ltd, Federal Bank Ltd and Punj Lloyd Ltd look good on the charts this week. Cipla at its last close of Rs262.45 has a target of Rs271 and a stop-loss of Rs248. Federal Bank at its last close of Rs220.80 has a target of Rs231 and a stop-loss of Rs207. Punj Lloyd at its last close of Rs184.80 has a target of Rs195 and a stop-loss of Rs173.
From the previous week’s recommendations, Kotak Mahindra Bank Ltd met its target and Jaiprakash Associates Ltd touched a high of Rs220 but missed its target of Rs223. Hindustan Zinc Ltd, however, triggered its stop-loss.
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, Jul 12 2009. 09 34 PM IST