Persistent buying by funds and traders helped boost key indices last week. Foreign funds, which have largely driven the rally that started in March, were the mainstay yet again as they bought stocks on declines. The global trend was largely weak with stock markets including Japan, France, Germany and Hong Kong posting mild losses although the Dow managed to close in positive territory. Overall, the trend remained cautious on global bourses with no positive trigger in sight.
Indian markets’ late recovery on Friday was impressive and at least limits the downward potential on the bourses in the current scenario. Despite the fact that the earnings season is over and signs of a global economic recovery are mixed, the positive trend on Indian bourses is likely to continue. This is largely due to the fact that the rally on Indian bourses is mainly liquidity driven, with fundamentals having taken a back seat.
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The weakness of the dollar is another factor that is fuelling the rally. The dollar index, which posted moderate gains last week, still has downward potential left, leaving room for gains on global bourses. Another important factor is commodity prices, which are likely to rise after declining in the latter part of last week. The Baltic Dry Index, a measure of shipping costs of commodities, is moving up sharply in a clear indication that demand remains robust.
This week in India, industrial output data for the month of October would be released. This data would be watched closely for cues on the Indian economy and infrastructure growth. If like industrial output data this data is also impressive, the markets would respond positively.
In the US, the economic calendar is packed for a holiday-shortened week. The US markets would be closed on Thursday for the Thanksgiving holiday. Critical data including home sales, consumer confidence and the second reading of gross domestic product growth would be watched closely for more cues on the world’s biggest economy. On Friday, the markets will anxiously scan data on US consumer spending against the backdrop of statements by retailers such as Wal-Mart Stores Inc. that the holiday season may turn out to be bleak for retail sales.
Weekly initial claims for jobless benefits will be released on Wednesday, a day earlier than usual, and there are moderate expectations of a marginal dip in unemployement. The minutes of the Federal Open Market Committee meeting, which will be released on Tuesday, will also be under the lens of analysts for clues to the Federal Reserve’s policy.
Technically, the trend on Indian bourses looks positive with more gains likely in the initial part of the week. On its way up, the Nifty is likely to test its first resistance at 5,089 points, which is an important level. If on its way up the Nifty breaks past this level, there would be further gains, which may push the Nifty to 5,194. This resistance, too, would be very strong and may trigger some profit selling. However, I do not think this level would be strong enough to arrest the positive momentum.
Once this level is crossed, market sentiment would turn clearly positive. The Nifty would then aim to test 5,304 points, which I think would be able to offer very strong resistance to the Nifty and force some consolidation.
On its way down, the Nifty has strong support at 4,924 points, which is likely to be very strong support. If this support is breached, investor sentiment would turn negative, signalling a decline. The next support is expected at 4,836 points.
In terms of the Sensex, the first resistance is expected to come at 17,101 points which, if broken, would signal a positive trend. The next resistance is expected 17,494 points. A confirmatory close above this level on good trading volume would mean a fresh rally, which would push the target to 17,778 points.
On its way down, the Sensex will find support at 16,637 and 16,294 points.
Among individual stocks, this week Axis Bank Ltd, Mahindra and Mahindra Ltd and Housing Development Finance Corp. Ltd, or HDFC, look good on the charts. Axis Bank, at its last close of Rs992.05, has a target of Rs1,024 and a stop-loss of Rs967. Mahindra and Mahindra, at its last close of Rs1,040.20, has a target of Rs1,067 and a stop-loss of Rs1,012. HDFC, at its last close of Rs2,811.95, has a target of Rs2,847 and a stop-loss of Rs2,774.
From my previous week’s recommendations, HDFC, HDFC Bank Ltd and Jindal Steel and Power Ltd all overshot their targets and closed with handsome gains.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at email@example.com