The Week Ahead: Markets critically poised at key support levels

The Nifty is very critically placed at key support levels of 5500, any breach of which can trigger a wave of selling. With pessimism at its highest, expect next week to be a trend-decider for the next few months.

 

The week gone by saw the Nifty again close in the red losing 0.44 per cent, while the Sensex fell 1.14 per cent. After being volatile in the first half of the week, the Nifty staged a smart pullback mid Wednesday onwards only to have a disastrous Friday with Infosys results upsetting the apple cart. 

 

The Infosys stock was down 22 per cent, its largest single day fall in a decade. With earnings per share (EPS) at Rs 160, the company guided EPS for 2014 to grow at the lower end of the 6-10 per cent scale. This implies that even at Rs 2,300, it still trades at 14 times its price earning multiple, which would still make it expensive given the growth guidance.

 

The Infosys results and the ETF (exchange traded fund) selling continued to dampen sentiment and India continued to be an underperformer globally. The US Dow Jones index repeatedly hit all-time highs and was kept company by the Japanese Nikkei index, which touched 5-6 year highs. The 'Buy' developed markets and 'Sell' emerging markets trade continues to see outflows from emerging markets and inflows into the developed markets.

 

For a change, the IIP (Index of Industrial Production) for the month of February was better than most expected and showed a growth of 0.6 per cent, versus an estimate of -1.6 per cent. Also the CPI (Consumer Price Index) came much lower, which also raised hopes of a rate cut by the RBI in its credit policy review in May. This saw a shift of stance with savvy investors selling technology stocks and buying financials along with certain infra and capital good stocks.

 

The resistance levels for the Nifty -- very crucially poised at key support levels of at 5500 -- is at 5630. But the key target would be to cross and close over the 200 DMA (day moving average) at 5645, which would add more strength to the up move.

 

The Bank Nifty, however, was an outperformer and gained 2.81 per cent for the week. It now finds support at 11,000 levels, and has closed at its crucial 200 DMA at 11410 levels. The Bank Nifty could now lead the rally and has become an outperformer from being a laggard.

 

The other notable gainer for the week was the Nifty Junior, which also closed up 1.4 per cent, indicating that the broader market has stopped falling.

 

The other India-related macroeconomic good news was that oil hit new 8-month lows and gold has fallen 20 per cent from its all-time highs on rumours of Cyprus selling huge 'tranches' and entered the conventional 'bear market' with savvy investors selling the commodity aggressively. This helps lower our CAD (current account deficit) by default and coupled with lower inflation, led to bond yields dip below 7.85 per cent, the lowest level in the last three months.

 

However, the rally in the US and the Japanese markets may continue to see ETF redemption pressure and much would depend on crucial corporate earnings this week from heavyweights like Reliance, TCS, HCL Tech and Wipro to help change the negative sentiment.

 

Tracking the 'A' group stocks, top three gainers of the week were Reliance Communications (20.39 per cent), Aurobindo Pharma (9.18 per cent) and Maruti Suzuki India (8.61 per cent). The top three losers of the week were Infosys (22.56 per cent), Muthoot Finance (15.71 per cent) and Wipro (14.63 per cent).

 

Despite being oversold, markets are struggling to consolidate and with sentiment being weak, most good news on domestic economic data is being ignored. However, high conviction to invest here could see very smart and handsome results in the coming few months.