Manufacturing data, global cues to determine market direction

Manufacturing data, global cues to determine market direction

Global equity markets came under selling pressure last week as concerns mounted over the contagion effect of the euro zone debt crisis. Though Ireland was coming off the radar after a bailout, there are concerns about the possible spread of the crisis to Portugal and Spain. After Ireland’s €90 billion (Rs5.47 trillion) bailout, the total European kitty, including the European Financial Stabilisation Mechanism and International Monetary Fund (IMF) support, is pegged at €473 billion. Analysts estimate that if Portugal seeks a bailout, €51 billion would needed, while for Spain the bailout could be close to €316 billion. If Italy, too, falls victim to the debt crisis, the situation could turn perilous. Such concerns are leading to a flight of investors from risky assets such as stocks to safer havens.

The strength of the dollar was another factor contributing to the decline on global stock markets, which ignored positive economic data from the US and Germany. There were also concerns among investors that China may soon increase interest rates which took their toll on stocks and commodities.

Back home, corruption scandals remained the focus of attention and the loans-for-bribes scam, which involved some public sector banks, Life Insurance Corp. of India (LIC) and LIC Housing Finance Ltd came as a big setback. The absence of any positive triggers and profit selling by foreign funds added to the woes of the market as key indices fell around 2.5% over the week.

This week, investors will keep an eagle eye on developments in Europe as well as economic indicators from the US, which has a busy calendar. The ADP employment report would be watched closely on Wednesday followed by weekly jobless claims on Thursday and non-farm payroll data on Friday. Apart from this, investors will also scrtutinize mid-west manufacturing data for October on Monday, the Chicago purchasing managers’ index (PMI) for November on Tuesday and same-store sales data on Thursday for cues on the state of the US economy. Since early indications of a buying frenzy on the so-called Black Friday weekend are encouraging, this will also be reflected on the markets.

Chinese and Indian manufacturing PMI data on Monday will also be watched very closely for cues on the state of their economies. If China impresses again with robust manufacturing data, it would boost investor sentiment although it will strengthen the case for an interest rate increase in China.

India’s HSBC Markit PMI and monthly auto sales data will also be critical. The industrial output data on Monday will also be under the scanner of investors since the data in recent months has indicated a slowdown in manufacturing activity. Any positive indications from the output data will cheer up investors.

Technically, the Nifty fell below its crucial support at 5,712 points last week, but bounced back to close above this level. The trend is still looking weak, but the Nifty is now close to its short-term bottom. On its way down, the Nifty is likely to receive support at 5,691, which is a moderate level. The index has good support at 5,637 and very strong support, which is likely to be bottom, at 5,591.

On its way up, the resistance for Nifty is likely to come at 5,830 points; a close above this level would be the first positive sign. The next resistance would come at 5,911 followed by very strong resistance at 5,967. Any close above this level would be bullish.

Among individual stocks this week, Dr Reddy’s Laboratories Ltd, Ranbaxy Laboratories Ltd and Tata Steel Ltd look good on the charts. Dr Reddy’s, at its last close of Rs1,787.15, has a target of Rs1,812 and a stop-loss of Rs1,751. Ranbaxy, at its last close of Rs545.95, has a target of Rs559 and a stop-loss of Rs528. Tata Steel, at its last close of Rs598.80, has a target of Rs616 and a stop-loss of Rs579.

Vipul Verma is chief executive officer, Comments, questions and reactions to this column are welcome at