Earnings, economic indicators to determine sentiment

Earnings, economic indicators to determine sentiment

Much on expected lines, markets consolidated during the last week maintaining its downward bias in the absence of fresh triggers. Though the indicators for the week were positive with food inflation inching down and corporate earnings outperforming expectations.

Also Read |Vipul Verma’s earlier columns

However, market sentiments remained jittery over the likely outcome of the meeting of the Reserve Bank of India (RBI) scheduled on 25 January. Though there are expectations of a 25 basis points hike in interest rates, which is well discounted in the market as well, markets continued to overreact to the fears of interest rates hike. One basis point is one-hundredth of a percentage point.

Given the major slump in the industrial output growth in November, the chances of aggressive monetary tightening are low. However, the market’s perception of this meeting still remained scary, which looks unfounded in the light of facts. I think RBI does not have too many options and the interest rate hike should not be more than 25 basis points. The actual outcome of RBI’s meeting would give the market necessary direction.

Though this is speculative, but given the fact that markets are in oversold zone, market reaction after the RBI meeting should be positive. Globally also the undertone continues to remain firm as the earnings season so far has been impressive. Moreover, the economic indicators have also been impressive.

Last week, German business morale rose to its highest level in 20 years in January, surging past economist’s forecasts on the back of a manufacturing sector now fully recovered from the 2008 financial crisis. French data showed business confidence rose strongly in the euro zone’s second largest economy, boosted by a surge in manufacturing sentiment. However, harsh weather and higher inflation combined to give British retailers their worst December on record, as per data released on Friday.

The US had a good week in economic indicators, with jobs scenario improving. China impressed with its quarterly gross domestic product numbers, but the better-than-expected figures only cemented fears of an imminent interest rate hike. So overall, the last week ended on positive notes with undertone remaining strong despite a sustained bull run in global bourses.

Indian markets are likely to remain edgy ahead of RBI’s scheduled policy review. The expiry of derivative contracts on 27 January will also keep sentiments tangled, as trading would be dominated by the derivative cycle expiry pressure. So this week the market trend would largely remain volatile with some strength expected towards the end of the week.

Globally, earning and economic indicators would continue to rule sentiments. Among key economic indicators, consumer confidence, durable goods orders, a first look at January consumer sentiment and the first look at fourth quarter gross domestic product would be watched very closely for cues on US economy. Wall Street will also note the statement on Wednesday afternoon from the Federal Open Market Committee, which is likely to give a slight nod to signs of improvement in the US economy, especially among consumers and factories.

Technically, the markets seem to have bottomed out in the immediate term and should now look up. The first resistance for rising the Nifty index on the National Stock Exchange is now expected at 5,748 points, which, if crossed, will improve technical outlook as the next key resistance level would come at 5,836. This level will be a moderate resistance level followed by a strong resistance level at 5,874. A bullish trend would be confirmed only if the Nifty closes above this level with decent volumes. The rising Nifty would then test its next important resistance at 5,957.

On its way down, the Nifty has its most important support at 5,632. If Nifty falls below this level with good volumes, or closes below this level, then my view of market’s bottoming out would change as the downside for the Nifty would then open prominently with next and a moderate support coming at 5,576, followed by a strong support at 5,491.

Among individual stocks, Shree Renuka Sugars Ltd, Century Textiles and Industries Ltd and Axis Bank Ltd look good on charts. Shree Renuka at its last close of 85.95 has a target of 91 and a stop-loss of 81. Century Textiles at its last close of 361.40 has a target of 374 and a stop-loss of 346, while Axis Bank at its last close of 1,284.40 has a target of 1,318 and a stop-loss of 1,256.

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