The Hindu Business Line : Index Outlook

The listless moves made by the Sensex last week reflect the stock market fraternity’s apathy towards the Union Budget this year. The absence of a pre-budget rally can, however, be counted as a blessing because it leaves room for the Finance Minister to spring a ‘positive surprise’ on the beleaguered stock markets.

Plunging turnover, too, denotes that traders and investors with recently-singed fingers are steering clear of the markets till this much-hyped annual event is safely out of the way. FIIs were seen toeing the line of the domestic investors; nibbling selectively in cash and derivative segment. Low open interest, below Rs 80,000 crores, is a positive as it denotes that there would be no unwinding pressure prior to the expiry of the February series.

The Sensex reversed from the peak at 18314 last week. The downward move that ensued was rather tentative implying that the corrective wave that commenced on January 22 could be evolving into a triangle. That translates in to some more range bound move between 16500 and 19000. This could be the range for the Sensex leading to the budget. The supports in this period would be at 17026 (200-day moving average) and then 16457 (trough formed on February 11).

However, the stock markets tend to react rather violently and at times irrationally on the budget day. So what if the market participants decide that the budget is market unfriendly? This would set off the third leg or the C wave of the fall from the 21206 peak. Since the A wave was intense and extremely swift, we might get away with a timid C that takes the Sensex down to 16230 or 15265. A full-fledged C can wreak much greater damage, but we will dwell on that possibility only on a weekly close below 16300.

Conversely, a market friendly budget can take the Sensex higher to 19151 or even 19500. But the intermediate term outlook will turn positive only once the Sensex is safely beyond 19500.

To sum up the budget day scenarios, a non-event kind of budget will retain the Sensex in its present range between 16500 and 19000. Investor unfriendly budget can drag the Sensex towards the January 22 trough and a friendly one will take the Sensex to 19500.

It needs to be borne in mind that the Sensex has already corrected 28 per cent from its 21206 peak. But we are yet to ascertain the pattern of this correction, whether it will be a flat or a triangle (a prolonged sideways move) or a zigzag that takes the index below January 22 trough. Given the uncertainty over the long-term direction, investors and traders are safer watching the budget day show from the fence.

Nifty (5302.9)

In the run-up to the budget, the Nifty could move sideways between 4800 and 5500. The key supports in this period would be 5032 and then 4860.

A nasty surprise in the budget that causes panic selling can make the Nifty move down towards 4644 or 4371. A weekly close below 4800 would mean that the positive long-term outlook for the index is under threat.

A positive budget can take the Nifty to 5657 or 5800. The intermediate term outlook will turn positive only when the index climbs past the second target.

Global Cues

Global indices failed to make any head way last week. But CBOE VIX reading of 24 denotes that investors were not unduly perturbed by the fresh set of negative news flow that hit the markets. Perhaps, they have now learnt to live with these.

The Nasdaq Composite Index and the Dow Jones Industrial Average reversed just above their recent troughs at 2252 and 12070 respectively. The chart pattern indicates that the sideways move can continue this week as well. The Latin American markets such as Brazil and Peru were buoyant.

The Karachi index has been among the front-runners in shrugging off the current correction and racing to a new high. Markets in Asian countries such as Hong Kong, Malaysia, Philippines and China continued to grind lower. Nymex crude prices moved beyond the $100-mark once again. The immediate support for the commodity is at $95. Consolidation above this level will pave the way for the next spurt towards $104 or $110. — Lokeshwarri S. K.

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