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Indicators point to further decline

Indicators point to further decline
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First Published: Mon, Jun 20 2011. 01 15 AM IST
Updated: Sat, Jul 02 2011. 04 35 PM IST
As expected, benchmark indices and markets in general drifted lower on weak global cues, disappointment over rising inflation, and further tightening of monetary policy, which has started reflecting in Indian economic indicators.
Auto sales, which grew at a breakneck pace of 30% in India in 2010, slowed down to just 7% in May, their slowest growth in two years. High interest rates and rising oil prices caused the slump. Then, the March quarter gross domestic product (GDP) growth slowed to 7.8%, well below the 8.3% expansion in the previous quarter as well as the forecast 8.2%. GDP growth from January to March was the slowest in five quarters. For the full year as well, the GDP growth of Asia’s third largest economy, at 8.5%, was a tad lower than the government’s estimates. The next sign was visible in India’s monthly infrastructure output, which grew 5.2% during April, slower than the year-on-year growth of 7.4% in March. The infrastructure sector accounts for 26.7% of India’s industrial output.
The next major indicator was India’s industrial output, which in April rose 6.3% from a year earlier. The comparable figure for the previous month i.e., March 2011 was 8.8%, while for April 2010 it was 13.1%. Manufacturing output, which constitutes around 80% of the industrial production, rose an annual 6.9%, according to the new series with a different base year of 2004-05, new components and weighting. These numbers show where the Indian economy is heading. From the stock market’s point of view, this means there is still some pain left on the bourses, before the markets see a technical rebound.
Globally, the economic indicators were mixed with China continuing to put up an impressive show. Its monthly industrial output rose 13.3% from a year ago. The strong Chinese numbers reinforced some lost confidence about global economic growth and also calmed investors. The condition in the US and Europe was somewhat mixed. The US index of leading economic indicators rose more than forecast in May to a record high, but the US consumer sentiment for June was weaker than expected.
However, Europe seemed to be in trouble despite France and Germany outlining an agreement to aid debt-burdened Greece. Another dimension was added to the European crisis after Moody’s Investors Service said it might cut the credit ratings of French banks, citing exposure to Greek debt. Late Friday, Moody’s also said it was reviewing Italy’s sovereign credit ratings for a possible downgrade. This could potentially be a bigger threat than the current Greek crisis. So, clearly, the dark clouds of uncertainty are only getting thicker on the horizon of Europe, and this is going to get reflected on global bourses.
For the week, strong closing on the US bourses might help the Asian bourses on Monday, but since the technical indicators are showing weakness, I think the initial gains might be hard to sustain. Indian technical indicators are pointing down and are showing further decline, at least in the initial part of the week. As I have been mentioning in my last few columns, Indian stock markets are in a consolidation phase with major support for the Nifty at 5,248 on closing basis.
If the Nifty falls below this level and rebounds to close above this level, the sanctity of this support level would remain intact. However, if it closes below 5,248, it would be bad for the markets as it will open a downside patch, which might take the Nifty to as low as 4,801 points, which will be a rock solid support. Before this, there would be another major support at 5,172, which is likely to force some rebound in the Nifty. If this level goes, the next critical support would be at 5,002, which is also likely to be good support. But if volume-led selling pushes the Nifty below this, the next support level would slip to 4,928.
On the upper side, the Nifty faces its first major resistance at 5,440. If the Nifty closes above this, there will be a fresh breath of positive sentiments, which would indicate further gains on the bourses. There will be a moderate resistance at 5,481 for the rising Nifty, but it would not threaten the momentum. If crossed, the next resistance would be 5,521. This would be a crucial level again and, so far, technical studies suggest this resistance would see some pull back if crossed. But this will only mean strengthening of positive sentiments, with the upper limit of the band offering trend deciding resistance at 5,612.
Among individual stocks this week, Tech Mahindra Ltd, Oil and Natural Gas Corp. Ltd and State Bank of India look good on the charts. Tech Mahindra, at its previous close of Rs 687.75, has a target of Rs 701, and a stop-loss of Rs 671. ONGC, at its last close of Rs 265.10, has a target of Rs 274, and a stop-loss of Rs 252 while SBI, at its last close of Rs 2,211.10, has a target of Rs 2,249, and a stop-loss of Rs 2,164.
From my previous week’s recommendations, Alstom Projects India Ltd and Axis Bank Ltd hit their targets easily. However, Wipro Ltd triggered a stop-loss.
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: Mon, Jun 20 2011. 01 15 AM IST