It seems Indian stock markets are on a ventilator. With sentiment worsening and the crisis deepening in the global markets as well as in India, investor confidence has plummeted. According to a Bank of America Merrill Lynch report, business confidence has gone below the level it was at when Lehman Brothers Holdings Inc. collapsed in September 2008.

Shyamal Banerjee/Mint

There are some positives. Falling crude prices have lent some support to the Indian economy and lower commodity prices are also likely to help; a $10 per barrel decline in the oil price reduces India’s current account deficit by 0.4% of gross domestic product (GDP) and the fiscal deficit by 0.2% of GDP. The rupee’s sharp depreciation means the benefits are not reflected either in terms of economic parameters or equity benchmarks.

Going forward, the broad trend remains weak and despite a strong recovery on Friday, after State Bank of India posted surprisingly strong earnings, the outlook has not changed much. Since inflation remains a big concern, the latest consumer prices index, which accelerated to 10.36%, has added to the worries, narrowing monetary policy options. It had been expected that the Reserve Bank of India (RBI) may take some monetary policy measures in its June meeting to revive economic growth. That looks like a bleak possibility now.

Technically, the markets are showing signs of recovery and based on key technical studies there are chances of a recovery in the Indian stock markets this week. With the broad trend being weak, any rebound would be essentially a short-lived relief recovery, which would be difficult to sustain unless it is supported by some strong policy-related measures. On Monday, the markets are likely to resume on a cautious note and after some range-bound volatility, may try to edge up.

On its way up, the National Stock Exchange of India Ltd's Nifty index will come across its first resistance at 4,923 points, which is a moderate resistance level, but could see some profit taking. If the Nifty is able to hold above this level with good supporting volume, this would be a positive and could push the index to 4,957 points, which is a good resistance level. If the Nifty is able to settle above this level on higher volume at the close, this would signal the beginning of a relief rally, with a target of 5,124-5,159 points. En route to this target, the Nifty will come across resistance at 5,017 points and 5,076 points. On its way down, the first support for the Nifty is at 4,846 points, which is an important level. If the Nifty drifts below this level on good volumes, this would be a bearish signal and could mean retesting its recent low of 4,789 points in the immediate term. Technically, this is not a very strong support and might succumb under volume-led selling. In this case, the Nifty would try to find support at 4,723 points, which is likely to be a strong level.

Among global factors, Saturday’s meeting of G-8 nations strongly supported keeping Greece in the euro zone and vowed to take all steps necessary to combat the financial turmoil while revitalizing a global economy increasingly threatened by Europe’s debt crisis. This is likely to ease sentiment, which had been rattled by the condition of Greece and an emerging crisis in Spain. The relief may be short-lived as the markets would like to see concrete measures and not hear just assurances. Among key economic data in the US, the new homes sales report is due on Wednesday. Numbers on initial jobless claims and durable goods orders will be released on Thursday, while consumer sentiment data will be released on Friday. Any positive indicators would be welcomed by the markets.

At home, among individual stocks this week ACC Ltd, DLF Ltd and Reliance Capital Ltd look good on the charts. ACC, at its last close of 1,159.85, has a target of 1,192 and a stop-loss of 1,123. DLF, at its last close of 186.20, has a target of 191 and a stop-loss of 180, while Reliance Capital, at its last close of 290.90, has a target of 298 and a stop-loss of 281.

From my previous week’s recommendations, Voltas Ltd met its target easily while Tata Motors Ltd and HDFC Bank Ltd triggered their stop losses. HDFC Bank remains a valid recommendation.

Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at ticker@livemint.com.

Also Read |Vipul Verma’s earlier articles

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