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Events in US to push down market

Events in US to push down market
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First Published: Sun, Aug 07 2011. 09 02 PM IST

Shyamal Banerjee/Mint
Shyamal Banerjee/Mint
Updated: Sun, Aug 07 2011. 09 02 PM IST
Reconcile with the inevitable. This is the crux of the situation in the global stock markets. On Friday, the US lost its top-tier AAA credit rating from Standard and Poor’s (S&P) in an unprecedented blow to the world’s largest economy in the wake of a political battle that took the country to the brink of default. After a deal was struck over the debt ceiling limit last week, it was quite clear that what has been negotiated is just too little-too late and was insufficient to escape the ire of rating agencies.
S&P had wanted a roughly $4 trillion in deficit reduction and a credible plan to fix longer-term deficit problems. It got neither. This decision cannot be termed as a shock to the global stock markets and economies as S&P has been warning for long about the likely consequences if the US failed to put up a convincing plan to put burgeoning debt under control. Nonetheless, since the worst case scenario has become a reality, it is going to have some impact when the markets open on Monday.
Shyamal Banerjee/Mint
No doubt I am worried about the downgrade. However, there is a silver lining as well. Two other rating agencies—Fitch Ratings and Moody’s Investors Service—affirmed their AAA ratings recently; so that should be some comfort to panicking investors.
The situation of Indian bourses continues to be critical as the market lacks the conviction for any strong recovery. Though markets rebounded sharply from intraday lows on Friday, a lack of volumes puts a question mark on both the magnitude and the momentum of recovery. As far as the Indian economic indicators are concerned, the weakness is clearly visible, and inflation is showing no signs of peaking out. Markets will watch out for monthly industrial and manufacturing output data on Friday, which may throw some light on the health of the Indian economy. Further disappointment from these critical economic indicators will not go well with the market.
Globally, Chinese data related to producer price index, consumer price index, industrial output and retail sales will be watched on Tuesday for cues on the Chinese economy, which has assumed a significant role in the global arena of late. Chinese trade data on Wednesday will also be watched closely. The US also has some important events lined up this week. Apart from the economic optimism data due on Tuesday, weekly jobless claims on Thursday and retail sales on Friday, the most important event in the US this week will be the federal open committee meeting, which will begin on Tuesday and conclude on Wednesday. The third quantitative easing will be the hottest topic as investor sentiments will be on tenterhooks as to what the Fed has to say about it. Though it looks a distant possibility in the present scenario, this could be the biggest boost for markets if it’s on its way.
Technically, the markets on Friday gave positive signals and, had the downgrade of US ratings not happened, I would have given a positive call. However, developments in the US will supersede all analysis and push markets down sharply on Monday. Analysis will come into play once the full impact of this is factored in in the prices.
From a broader perspective, the technical analysis suggests that the base of the market has now shifted to 4,712 points. It is not necessary for the Nifty index on the National Stock Exchange to hit so low as markets may take support before that also, depending on several other factors. On its way down, the Nifty may see moderate support at 5,081 points. However, if the market falls with good volume, this level will weaken and the Nifty will then look for support at 4,960, which looks strong. This level is likely to see good bargain-hunting and bounce. If there’s good consolidation, and recovery comes on good volumes, this level will offer good support. However, any convincing close below this, supported by heavy volumes, indicates a further fall.
On its way up, there is a good resistance at 5,232, which if broken can lead to recovery upto 5,323 without much difficulty. The Nifty will find it difficult to cross this level, but if it manages to close above this convincingly, it would mean the beginning of positive sentiments with the next resistance at 5,434 in sight.
This week, Infosys Ltd and ICICI Bank Ltd look weak on charts, while HPCL Ltd looks good. Infosys, at its last close of Rs 2,591.20, has a target of Rs 2,532, and a stop-loss of Rs 2,648; ICICI Bank, at its last close of Rs 966.50, has a target of Rs 931, and a stop-loss of Rs 983, while HPCL, at its last close of Rs 404.45, has a target of Rs 416, and a stop-loss of Rs 391.
From my previous week’s recommendations, DLF Ltd, Punjab National Bank Ltd and Tata Motors Ltd missed their targets by a whisker and later succumbed under market pressure and hit 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: Sun, Aug 07 2011. 09 02 PM IST