The Nifty index of the National Stock Exchange of India Ltd followed the path exactly as mentioned in my column and headed south for the third week in a row, as wild swings in the rupee and ambiguity over GAAR (general anti-avoidance rules) pushed the benchmark indices lower at close. As expected, the Nifty fell initially to its critical support level of 4,991 points and then saw strong gains after finance minister Pranab Mukherjee clarified the GAAR issue. Interestingly, the strong recovery in the Nifty pushed it up to 5,124.75 points, which was close to the strong resistance of 5,126 points mentioned in the column last week. Since the Nifty could not break this level, it resumed its downtrend and headed for its next key support at 4,912 points. Nifty, though, edged below this level temporarily mainly due to momentum and touched 4,906.15 points, but finally settled at 4,928.90 points. Given the underlying sentiments, the weakness is still intact on the bourses, and unless the Nifty sees a strong bounce from the current level, chances of lower levels remain strong. In a way, the next support level of 4,903-4,912 points will serve as an important support for the markets. If the Nifty settles below this level, this will be an indication of a continuation of the bearish trend on the bourses.

By Shyamal Banerjee/Mint

Since India has a massive trade deficit and export growth is dwindling, the pressure on the rupee is bound to be there. Therefore, some pressure on the stock market will continue due to uncertainties in the forex markets. It will be interesting to see how the rupee fares this week as the volatility is likely to continue. If the rupee settles above 54, there could be more volatility on the bourses. Another important thing that the markets should watch for this week is WPI (wholesale price index) inflation. Specially after the disappointing monthly industrial output data, inflation data will be important. If inflation eases, it could be a good sign for the markets as this will signal more easing in RBI’s meeting in June. However, if inflation disappoints there could be more trouble for the Indian markets.

Globally, there is not much to cheer about as neither the economic indicators nor the market indicators are looking good. Though the fall on global bourses has been moderate, they too seem to be running out of steam in the absence of fresh triggers. The fact that JPMorgan Chase & Co., the largest US bank by assets, suffered huge losses on derivatives trades is going to worsen the situation as it could raise concerns that this problem could reverberate through the banking sector. The US’ economic picture is looking shady as economic indicators are giving conflicting signals. Markets are hoping for some more push from the Federal Reserve. Markets will thus closely watch the minutes from the Federal Reserve meeting for guidance on whether the central bank plans to give additional help to the US economy.

Technically, the markets are still in a downward phase, but in the immediate term some recovery is on the cards. The strength of recovery will determine the fate of bearish sentiments on the bourses, which is tough to determine at this point. On its way up, the Nifty is likely to see a minor resistance at 4,957 points, which may not pose any threat if volumes support the rise. The next resistance will come up at 5,016 points, which will be a moderate resistance and not pose any serious threat to the northward momentum as long as the volume supports the rise. The next resistance, at 5,046 points, will be important and may offer good resistance to the Nifty’s northward momentum. If the Nifty settles above this level, it will be a positive signal and mean more gain on the bourses. However, the market will need to close above 5,186 points to offer a confirmation of a positive trend in the Nifty. On its way down, the Nifty has its first support at 4,902 points, which is an important support. If this support is breached, the outlook for the Nifty will turn negative. The next support will then come up at 4,845 points, followed by a strong support at 4,791 points.

Among individual stocks, this week HDFC Bank Ltd, Voltas Ltd and Tata Motors Ltd look good on the charts. HDFC Bank at its last close of 510.55 has a target of 522 and a stop-loss of 496. Voltas at its last close of 107.30 has a target of 111 and a stop-loss of 101, while Tata Motors at its last close of 297.50 has a target of 305 and a stop-loss of 288.

From my previous week’s recommendations, Ranbaxy Laboratories Ltd overshot its target, while Lupin Ltd missed its target by a whisker. Welspun Corp. Ltd could not touch its target and is still 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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