The Hindu Business Line : Index Outlook

Indian markets slipped in to a somnolent state last week. The monotonous onslaught of negative news has probably left it too bored to react any more or perhaps this is the saturation point. However, periods of lull in stock markets need to be treated guardedly since there could a surprise brewing somewhere that can catch us unawares at the next corner.

Volumes were extremely low though pockets of action were witnessed in the small cap segment. FIIs were net sellers in the cash segment. Open interest in NSE derivative segment has crept up though it is nowhere near the level seen in the heady days prior to January correction. Nifty put call ratio of above 1.2 reflects the cautious stance being adopted by the market participants.

It was a one-day-up and one-day-down kind of a move in the Sensex last week as it remained in a tight range between 15300 and 16000. The weekly and monthly momentum indicators are beginning to stabilise at lower levels though daily oscillators imply the volatility could return in the near-term.

The Sensex has been moving sideways since the March 18 trough at 14677. There are three possible counts for this move. (a) This could be the second minor of the third wave of the correction that began in January. As per this count, the index will witness another steep and vertical fall to 14198 or 12805. (b) The second possibility is that the move since March 18 is a more sustainable corrective pull-back (B wave) that can take Sensex to 17200 or 17500. (c) The more ambivalent count is that the B wave could result in a move between 14500 and 16500 for a few months.

For the near term, it is best to be ready for sudden moves in either direction. If the Sensex fails to move past 16000 next week, investors should brace themselves to face a decline to 15247 or 14808 in the near term. A close past 16000 will avert the bleak near-term outlook and pave the way for a rally to 16406 or 17088.

The earnings season in India and overseas is likely to result in a very turbulent phase in stock markets over the next few weeks. With the impending RBI’s monetary policy and the derivatives expiry thrown in, we are in for some interesting times (as the Chinese mean it). Long-term investors can use declines to accumulate stocks. Those with less holding capacity can take that much-needed and long-overdue break.

Nifty (4777.8)

Nifty too is at crossroads. For the near-term, the index needs to move past 4840 in order to usher in a move to 4943 or 5135. Nifty will face strong resistance between 4970 and 5000 where the 50-day moving average is also positioned.

The key support for the week would be at 4628. Traders can initiate fresh shorts on a decline below this level. The subsequent target is 4475.

The next two weeks will determine the medium-term outlook for the index. Failure to move past 5000 in this period would be a sign of an impending decline to 4424 or 4087.

Conversely, a move past 5000 can ensure another 200 points rally in the index.

Global Cues

Equity markets across the globe failed to make any headway last week. Dow Jones Industrial Average reversed from the resistance at 12750 indicated in our last column. The decline on Friday leads us to infer that the index continues to be in a medium-term trading range between 11600 and 12600. Asian markets in Taiwan, Hong Kong and Malaysia turned in a relatively stronger performance. Shanghai Composite halted its headlong plunge and made some feeble attempts at recovery.

Base metals such as aluminium and copper recovered to move close to their previous peaks though gold is still far from its recent peak of $1030.

The metal faces near term resistance at $950. Failure to move beyond this level will keep the metal in the range between $870 and $950 for a few more weeks. — Lokeshwarri S. K.

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