The party on the stock markets finally ended last week because of a non-event. The interim budget presented by the United Progressive Alliance coalition triggered fresh selling as it failed to deliver anything the markets had expected.
Investors were also shocked by the magnitude of the fiscal deficit. One big concern is its impact on India’s debt ratings, with no one ruling out a worsening of the deficit. Standard and Poor’s rates India’s local currency rating BBB minus, or the lowest investment grade, with a stable outlook. Fitch has a similar rating, but with a negative outlook, while Moody’s Investors Service pegs it one notch lower at a speculative grade.
Following the budget, all credit assessors voiced their concern about the fiscal deficit and talked about a possible downgrading of India’s ratings. Any lowering of ratings would be a big setback to stock market sentiment and to the economy as a whole because of the spiralling impact it would have on foreign institutional investment and foreign direct investment.
Globally, the economic scenario only worsened and markets across the world lacked any positive triggers. With the earnings season ending and no big announcements expected this week, global markets are likely to grope for direction. Back home, the markets clearly lack triggers, and are likely to maintain a downwards bias unless the Reserve Bank of India further slashes interest rates or the cash reserve ratio, the portion of deposits that banks have to maintain with the central bank, to boost liquidity.
Also read Vipul Verma’s earlier columns
Technical analysis suggests a mixed trend, with a silver lining. According to a key technical indicator, intermittent rebounds are possible despite sentiment being weak. For example, at this point of time, analysis of the Bombay Stock Exchange’s benchmark index, the Sensex, shows that if the index crosses 8,882 on convincingly good volumes, it may witness a short rally of about 100 points. However, this may not change the broader outlook for the Sensex till the time it crosses 9,110. Once the Sensex closes above 9,110, it would be poised for further gains, which may get stretched to 9,233. Though there would be some consolidation and profit selling around this level, the undertone on the markets would remain bullish. There would be more gains once the consolidation is over, with the next resistance level at 9,304 points. Between 9,304 and 9,389 is a resistance band that would be decisive for the short-term Sensex trend. If this band is breached, there would be a steady rally stretching up to 9,689 points.
As the broader market sentiment remains down at this point of time, the support level at 8,764 would be very critical to watch. If a falling Sensex drops below this level on higher volumes, there would be more trouble, with the index aiming for 8,643 points for trend-deciding support. If the Sensex garners enough support around this level, it may witness a short rally. But a close below this level on higher volumes would signal more declines. Immediately below this level, there would be strong support at 8,534 points. But this would be a moderate support level. And in the event the Sensex falls further, the chances would increase that it will test its recent low of 7,697 points, though it would find support at 8,308 points in between.
Damp squib: A TV grab of Pranab Mukherjee presenting the interim budget. Credit assessors have voiced concern about the fiscal deficit. PTI
The S&P CNX Nifty, if the index crosses 2,749 points on convincingly good volume, it would head in the same direction as the Sensex. However, since these are small rebounds, they may not alter the broader outlook for the Nifty unless it crosses 2,806 points on good volumes. If it indeed closes above 2,806, there would be a build-up of positive sentiment and the Nifty would be then headed for further gains, with the next support coming at 2,844 points. This would be an important level as gains beyond this level would change sentiment and signal a rally.
On its way down, the Nifty would test its first critical support at 2,702 points. A close below this level would be negative and indicate more declines. However, there would be critical support at 2,665 points, which would be an important level to watch. A close below this level would seriously dent sentiment and indicate a strengthening of the downtrend, with the next critical support coming at 2,511 points. This should be rock bottom for the Nifty. But a close below this level could take it to 2,300.
Among individual stocks, Bharti Airtel Ltd, Cairn India Ltd and Great Offshore Ltd look good on the charts. Bharti Airtel at its last close of Rs642.70 has a target of Rs657 and a stop-loss of Rs622.?Cairn India at its last close of Rs152 has a target of Rs160 and a stop-loss of Rs143. Great Offshore at its last close of Rs258.75 has a target of Rs272 and a stop-loss of Rs243.
From the previous week’s recommendations, both ICICI Bank Ltd and Housing Development Finance Corp. Ltd fell and triggered their stop-losses. Housing Development and Infrastructure Ltd touched a high of Rs92, but missed its target of Rs93 by a whisker.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org