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Broader undertone is positive

Broader undertone is positive

Markets tumbled across the globe last week as dwindling prospects for various economies painted a gloomy outlook for global economic growth. After several weeks of good economic news, last week saw weak and disappointing indicators from across the globe. First, the rising cost of insuring Spanish debt against defaults increased worries about Europe’s financial health. Then the US’s weekly jobs report showed new claims for unemployment benefits unexpectedly rose to their highest level since January, heightening worries about a stalled labour market recovery. In China, data released on Thursday showed growth in the country’s gross domestic product slowed to 8.1% in the first quarter—the weakest pace in nearly three years—from 8.9% in the fourth quarter. This raised serious doubts about the health of the world’s growth engine. Since this was not a one-off instance, it justifiably added to worries about China’s economy.

The silver lining last week was that none of the major bourses dropped below their critical support levels. Softer commodity and oil prices were another positive for inflation-marred economies, which eased some concerns for struggling economies. But broader concerns remained about economic growth and the worsening situation in Europe.

Globally, the economic calendar is hectic this week with retail and key housing data due in the US. US retail sales data will be released on Monday, housing starts, building permits and monthly industrial output data will be released on Tuesday, and weekly jobless claims and existing home sales data will be released on Thursday.

For Indian bourses, it’s an important week as the most-awaited event after the federal budget—the periodic review of monetary policy by the Reserve Bank of India (RBI)—is scheduled for Tuesday. RBI is expected to take a call on the most critical aspects—interest rates and liquidity in the system. If RBI adopts a dovish tone, it will likely cheer market sentiments. The monthly inflation data to be released on Monday will be watched closely and might have a bearing on the outcome of RBI’s meeting on Tuesday. Going by broad expectations, RBI is expected to cut the interest rates by 25 basis points for the first time since April 2009, but it could keep the cash reserve ratio steady after slashing it by 125 basis points this year. This will be the trigger for the market in the short term, though quarterly earnings will continue to weigh on market sentiments.

Technically, my analysis suggests the broader undertone on Indian bourses remains positive despite all uncertainties, and based on my technical studies, I remain positive on the markets and expect the benchmark indices to rise in the immediate term.

On its way up, the benchmark Nifty index on the National Stock Exchange of India Ltd has its crucial resistance at 5,262 points. A close above this level will be considered positive, but will not be a confirmation of a positive trend. A comfortable close above this level will push the resistance to 5,312 points, which is another important level as a close above this will significantly boost sentiments. The third and final resistance at 5,381 points will be trend-deciding as a close above this accompanied by good volumes will mean a strong rally on the bourses.

On the downside, there is an immediate support at 5,181 points, which is an important support as a close below this level with higher volumes will mean more fall as Nifty will then seek to find support at 5,112 points, a critical support level. If it breaks below this level with heavy volumes, this will be a negative signal, which could push Nifty down to 5,048 points, which so far is a strong support.

Among individual stocks this week Yes Bank Ltd, Grasim Industries Ltd and Mangalore Refinery and Petrochemicals Ltd (MRPL) look good on the charts. Yes Bank at its last close of Rs365.45 has a target of Rs374 and stop-loss of Rs355. Grasim at its last close of Rs2,640.35 has a target of Rs2,683 and a stop-loss of Rs2,578. MRPL at its last close of Rs63.95 has a target of Rs67.50 and a stop-loss of Rs60.50.

From my previous week’s recommendations, JSW Steel Ltd and Yes Bank met their targets, but DLF Ltd missed it by a whisker.

Also Read | Vipul Verma’s earlier articles

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

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