After a firm start, markets tumbled yet again towards the end of the week on disappointment over the 2008 Budget and renewed concerns over recession in the US economy. The Budget, which was long-awaited as a source of direction for the stock markets, proved to be a dampener—it lacked direction and the hike in short-term capital gains tax came as a negative surprise for the markets.
The farm loans waiver was also a big negative for the stock markets. In a nutshell, the Budget failed to revive market sentiments despite the fact that it had some good strategies to fight inflation, which is of prime concern to the stock markets.
However, it is important to note that the Budget had some good proposals as well and these will be reflected in a better performance by the industry in coming months. Therefore, despite the fact that the Budget failed to revive the markets instantly, it will boost the markets in the coming weeks and months.
However, international factors led by events in the US will play a more significant role in days to come. A sharp fall on US bourses on Friday on renewed concerns over a recession in the country and losses at American International Group Inc. (AIG) resulted in a fall in equities and key indices on Friday. AIG reported a $5.3 billion (Rs21,147 crore) loss stemming from housing-related write-downs.
US equities suffered a further blow after JPMorgan Chase and Co. stated that first quarter home equity losses could total about $450 million, and that net charges for bad debt could double from that level by the fourth quarter of 2008. This news aggravated selling in financial stocks, which were already down after the AIG announcement. Later, shares of Dell Inc. fell sharply after the company posted a lower-than-expected quarterly profit amid caution that tough times lie ahead.
All these led to a severe beating of US stocks, which spilled over to American depository receipts of Indian firms as well, which fell, on an average by more than 3%, with those of Satyam Computer Services Ltd falling 6.34% and Infosys Technologies Ltd, 4.89%. ADS (American depository share) prices of other Asian economies also witnessed a downtrend which will be reflected when they resume trading on Monday. Clearly, we may greet this week with falls, which can be aggravated further if economic data flow from the US continues to remain negative.
Roller coaster: Traders outside the Bombay Stock Exchange. A tug of war is expected to continue on Indian bourses as negative international cues and positive domestic triggers continue to keep traders on tenterhooks. (Photo: Abhijit Bhatlekar/ Mint)
On Monday, the US Institute for Supply Management (ISM) will release its February reading on manufacturing, followed on Wednesday by that for the services sector and January factory orders. However, the major market moving news is expected on Friday when data in US employment will be released. Data on January “pending home sales” and weekly jobless claims will be released on Thursday.
Also due to be released on Thursday is monthly sales of Wal-Mart Stores Inc. It is going to be a data-heavy week and the numbers will have a major bearing on the Federal Reserve’s meeting on 18 March, when the interest rates in the US are expected to be slashed by 75 basis points.
While factory orders and the non-manufacturing ISM survey will point towards inflation levels, the monthly employment report and weekly jobless claims will point towards the overall state of the economy. Sales figures of Wal-Mart Stores could throw some light on consumer spending. Therefore, this week, global markets will look to the US for leads. However, investors should not panic over the state of the US economy as the interest rate cut on 18 March is more or less certain.
Back home, a tug of war will continue on Indian bourses as negative international cues and positive domestic triggers and bargain buying continue to keep traders on tenterhooks. The beginning of the week is likely to be on negative notes and there is going to be some gloom initially as the benchmark BSE Sensex has the potential to shed 350-500 points or more. However, the positive aspects of the Budget will start having their impact sooner than later, which would lead to some bargain buying.
Technically, the BSE Sensex is likely to face first support at 17,136 points, following which the next support is likely to come at 16,603 points, which is likely to offer a strong support to the falling Sensex. However, if the Sensex closes below this level with significantly larger volumes, then there could be big trouble as it will not only test its recent lows, but may fall further to test new lows.
On its way up, the Sensex is likely to test its first resistance at 17,685 points, following which the next resistance is likely to come at 17,858 points; if this level is broken, then the sentiments on bourses could turn positive leading to higher levels, with resistance at 18,135 points and 18,314 points.
This week, Tata Tea Ltd, Reliance Industries Ltd and Mahindra and Mahindra Ltd look good on our charts. Tata Tea at its last close of Rs821.60 has a potential to touch Rs856, with a stop loss of Rs792. Reliance Industries at current market price of Rs2,463 has a target of Rs2,598, with a stop loss of Rs2,358. While Mahindra and Mahindra, at current market price of Rs691.75, has a target of Rs720, with a stop loss of Rs667.
From our last week’s recommendations, Sterlite Industries Ltd touched a high of Rs879, which was well above its target of Rs829, gaining 9.8% during the week. IVRCL Infra and Projects Ltd touched a high of Rs493, almost meeting its target of Rs494. Oil and Natural Gas Corp. Ltd (ONGC) touched a high of Rs1,054, which was comfortably above its target of Rs1,050.
Vipul Verma is a Delhi-based investment adviser. Your comments, questions and reactions to this column are welcome at email@example.com