Stock investors have a lot to cheer after 2009. During the year, the Bombay Stock Exchange’s key index, the Sensex, soared 81%, powered by a surge in foreign fund inflows. Still, at every rise, optimism was tempered by caution as many market analysts kept betting on equities declining. Interestingly, the markets defied the pessimists, kept rising and in the fading days of 2009, indices touched new highs for the year. This was a global phenomenon, although the extent of gains varied. The US Standard & Poor’s 500 index rose 23.5% in the year while the Dow Jones Industrials Average climbed 18.8% and the Nasdaq jumped 43.9%.
India was one of the best performing stock markets in Asia and bettered a three-quarters rise in the MSCI Emerging Markets Index and an increase of nearly one-third in the MSCI all-country world stock index. The Indian benchmark just pipped the Shanghai Composite index, which rose 80%, but lagged Indonesia’s 87% rise and that of Sri Lanka, where the main index more than doubled.
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The big question is what does 2010 have in store for investors? Will the global bourses be able to repeat their 2009 performance? To answer the first question first, 2010 would be an interesting year, and should have a lot in store for investors. But there would be more sector-specific growth in 2010 than aggregate market growth. Investors betting on the right sectors and right stocks should be able to profit. Answering the second question, the markets may not be able to repeat the performance of 2009 because of several reasons. The base for 2009 was low, making strong gains possible. The valuations at the beginning of 2009 were also low, which led to such a strong rally. In 2010, the benchmarks are placed at reasonable valuations and runaway rallies are not very likely. Second, governments across the globe provided generous stimulus to pull their economies out of recession. These efforts succeeded, but this year will see the withdrawal of such economic stimulus, which might put some strain on economic growth. Although several major economies such as the US, China, Japan and India have vowed to retain their focus on economic growth, the stimulus would have to be rolled back at some stage during this year.
Third, galloping inflation, which is an outcome of the generous economic stimulus and heavy infusion of liquidity, will weigh very heavily on investors because tougher fiscal and monetary measures would be needed to tame prices. Fourth, with the US economy recovering its strength, the dollar is likely to appreciate, which could affect liquidity in emerging economies.
Fresh enthusiasm: Inside the New York Stock Exchange. Investors may return despite poor performance of the US markets on 31 December. Don Emmert / AFP
On the positive side, the rally in commodities is still likely to continue, powered by rising demand. This would, in turn, keep the momentum going in equities.
Lastly, with weather conditions likely to remain weak, according to broad meteorological predictions, there would be pressure on agricultural and economic growth. This is like a double-edged sword. On the one hand it would inihibit economic growth and fan inflation, while on the other it would leave little money in the hands of people, which would restrict spending and affect growth.
To sum up, I am bullish on 2010, but I would focus on specific sectors and stocks rather than the market as a whole. Technically, the first quarter and the last quarter of 2010 would be good, while there would be caution and consolidation with a downward bias in the second and third quarters.
Back to this week, investors are likely to return with fresh enthusiasm despite a weak closing on 31 December on US bourses. From the economic perspective, this week would be important as investors await a snapshot of the US economy in December. The main event in the US would be Friday’s report from the Labor Department on the US non-farm payrolls in December.
Back home, the year has already begun on a bullish note with bumper auto sales figures from December. On Monday, the HSBC Market Manufacturing Purchasing Managers’ Index for December would be released. Expectations are for good numbers, and if they aren’t belied, would boost market sentiment. The focus of investors would turn to company earnings that are round the corner.
Technically, the markets are in a positive mode and are likely to extend gains on Monday and in the initial part of the week. The Sensex is likely to face its first resistance at 17,531 points, followed by 17,771. The second resistance level would be strong and could invoke some profit selling. If this level is broken, the Sensex would aim to touch 18,000 points. The next big resistance would come at 18,159 points. On the downside, the Sensex has support at 17,324, 17,198, and 17,010 points.
In terms of the S&P CNX Nifty, the first resistance is at 5,247 points, which is a moderate level, followed by 5,113 and 5,411 points. While on the downside, the index is likely to find support support at 5,158 points, followed by 5,058 and 4,991 points. A fall below 4,991 would be considered bearish, signaling more declinesl in the coming sessions.
Among individual stocks this week, Oil and Natural Gas Corp. (ONGC), Alstom Projects India Ltd, and Mahindra and Mahindra Ltd look good on the charts. ONGC, at its last close of Rs1,178, has a target of Rs1,204 and stop-loss of Rs1,155. Alstom India, at its last close of Rs568.30, has a target of Rs594 and stop-loss of Rs544. Mahindra and Mahindra, at its last close of Rs1,080.85, has a target of Rs1,110 and stop-loss of Rs1,056.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org