Economic data will guide markets

If the data dispels doubts over the strength of the Indian economy, it could provide a boost

After the initial decline, key indices bounced back last week on bargain hunting by funds and traders. Positive global cues and persistent buying by funds helped the markets recover all initial losses. At the end of the week, the benchmark Indian indices closed about 1.6% higher. Leading markets including the US and China were way ahead, closing the week with gains of about 3.2% and 5.6%, respectively. Positive auto sales figures, higher cement dispatches, the October Purchasing Managers’ Index that met expectations and the finance minister’s assurance that the fiscal stimulus would continue boosted investor sentiment.

Globally, the US’ Federal Open Market Committee meeting, the critical non-farm payroll data and the Institute for Supply Management surveys on manufacturing and services sectors in the world’s largest economy had been awaited with a lot of caution. Except for the monthly non-farm payroll data, other economic indicators were positive, giving a leg-up to US bourses.

The focus this week is going to be back to the basics. Following the disappointment over non-farm payroll data, the focus will shift to consumer sentiment and spending to judge the dent created by the US unemployment rate, which topped 10% for the first time since 1983. This week, earning reports from major retailers will be weighed for signs of life in the consumer market. Any positive would boost sentiment. Wal-Mart Stores Inc.’s earnings report would be watched closely. The US trade deficit for September, along with October’s import and export prices, and the first reading of consumer sentiment for November would also be gauged for the strength of recovery in the US economy.

On the domestic front, this week would be important for the economic data that will be released. Industrial and manufacturing output data for September would be released on Thursday, which could be a trigger for the markets. If the data dispels doubts over the strength of the Indian economy, it could provide a boost. Any disappointment could be severely negative and spark a downslide. However, the markets are likely to trade up ahead of the announcement.

Technically, the market undertone looks positive. On its way up, the Nifty is likely to test its first resistance at 4,858 points, which is a very important level. There could be some profit selling around this level in the event of a lack of momentum. If the momentum picks up on good volumes, the market could see some consolidation around this level and then a break-out followed by fresh bargain buying. The Nifty would test resistance again at 4,897. This would again be a good resistance level and force some consolidation. If the momentum remains strong around this level, there would be more gains, shifting the resistance to 4,960 points.

On its way down, the Nifty has its first support level at 4,767 points, which would be a moderate support, followed by 4,714, which is a strong level. If this level is breached, the Nifty would find its next support at 4,613 points.

For the Bombay Stock Exchange’s Sensex, the first resistance is expected around 16,289 points, followed by 16,489. There would be very strong resistance at 16,679. On its way down, the Sensex would test its first support at 16,057 points, followed by 15,891 points. If this level is breached, the next important support will come at 15,570 points; a breach of this support would clearly mean new lows in the coming sessions.

Among individual stocks, this week Andhra Bank, HDFC Bank Ltd and Larsen and Toubro Ltd (L&T) look good on the charts. Andhra Bank, at its last close of Rs115.85, has a target of Rs121 and a stop-loss of Rs109. HDFC Bank, at its last close of Rs1,640, has a target of Rs1,666 and a stop-loss of Rs1,618. L&T, at its last close of Rs1,579.55, has a target of Rs1,606 and a stop-loss of Rs1,551.

From my previous week’s recommendations Allahabad Bank and Punj Lloyd Ltd met their targets easily while Lupin Ltd gained sharply and overshot its target by a wide margin.