Oil prices, rupee weigh on markets4 min read . Updated: 02 Jul 2011, 06:26 PM IST
Oil prices, rupee weigh on markets
Oil prices, rupee weigh on markets
As expected, the markets consolidated last week in range-bound fashion as investors made profits following the big rally in the last two weeks. Economic indicators remained positive in most parts of the world. Sentiments on bourses were dampened by a spurt in oil prices following escalation of tension in Libya, dwindling condition of the Portuguese debt crisis and Portugal’s seeking of a bailout package. However, since much of it was already discounted, it did not trigger a crisis. Similarly, the Chinese interest rate hike was downplayed by global markets, indicating that the undertone on global bourses remains strong.
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Back home, there was not much on the economic agenda last week. So Indian bourses continued to seek direction from global bourses. Foreign fund buying continues unabated and there is interest in Indian equities at every decline, showing upward momentum of the bourses remains strong. But concerns about rising crude prices and the strengthening rupee are going to bother the market in short term.
Crude prices rallied on Friday without showing any signs of let up. This is a big reason for worry as India is struggling to keep inflation in check. Since food prices are also high, rising oil prices are going to make inflation worse and strengthen the case for further monetary tightening by the Reserve Bank of India (RBI) in its meeting in May, which is bad for the industry and the stock market.
The strengthening of the rupee reduces the competitiveness of Indian exporters, which mainly affects the services sector. It would be interesting to see what revenue guidance top Indian information technology (IT) firms like Infosys Technologies Ltd, Tata Consultancy Services Ltd and Wipro Ltd give for the following quarters.
The beginning of the earnings season will also bring in some caution, even though we are entering the season with reasonable optimism. The earnings season in India would kick-start with the Infosys numbers scheduled for release on 15 April. This could be the next trigger for the markets as positive numbers could lead to a re-rating of IT stocks and, possibly, renewed buying, while lower than expected earnings could trigger profit selling. Before the Infosys numbers, the industrial output growth and manufacturing output growth numbers would be watched closely on Monday.
Since the HSBC Markit PMI (purchasing managers index) has been positive for the month of February, the markets are expecting a growth rate of 5.2% in industrial output. An increase in industrial growth would be a positive for the stock market as it nullifies the impact of monetary tightening, thereby raising the bar of optimism on the prospects of the Indian economy. Indian WPI (Wholesale Price Index) data, scheduled for release on 14 April, will also be closely watched. In the US, as usual, Alcoa Inc. will kickstart the earnings season with its numbers due after the closing bell on Monday. Large companies such as JPMorgan Chase and Co., Bank of America Corp. and Google Inc. will also report their earnings this week. Economic indicators due this week include the consumer and producer price indices, consumer sentiment index, weekly jobless claims and the Federal Reserve’s Beige Book of economic activity.
In India, the markets are likely to edge lower as short-term economic indicators are in overbought zone and are showing some weakness. However, the downward potential at current levels is not large and markets are likely to broadly consolidate with a negative bias. The first support of the Nifty index on the National Stock Exchange is likely to come at 5,803 points—a minor support level. The next support would come at 5,712, likely to be a good support. However, volumes-led selling could breach this level, too, and the Nifty would then head for its major support at 5,655, which is likely to hold even in tough conditions.
On its way up, the Nifty is likely to come across its first resistance at 5,876. If this level goes, the Nifty would see a short rally up to 5,917, which is a good resistance level and also the anchor for the next rally if the Nifty closes above this level or breaches this level with good volumes. Following this, though, there would be a small stopover at 5,948, but this being a minor hurdle, the Nifty would target the level of 6,072 on confirmation.
This week Bharat Heavy Electricals Ltd (Bhel), Larsen and Toubro Ltd (L&T) and Reliance Infrastructure Ltd look good. Bhel, at its last close of ₹ 2,201.45, has a target of ₹ 2,238 and a stop-loss of ₹ 2,158. L&T, at ₹ 1,678.45, has a target of ₹ 1,708 and a stop-loss of ₹ 1,634. Reliance Infra, at its last close of ₹ 678.40, has a target of ₹ 696 and a stop-loss of ₹ 656.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at email@example.com