Showering blessings? The Met department has predicted that total rainfall for the crucial June-September monsoon will be below normal for the first time in four years. This has temporarily scared investors. Punit Paranjpe / Reuters

Much on expected lines, key indices fell initially, but bounced back on bargain hunting at lower levels. The gains were not limited to India; global bourses also showed resilience in the face of lingering economic concerns. Positive data flow spurred the northward momentum.

In India, the markets took their cues from global economic indicators and showed signs of strength despite the fact that the prediction of a below-normal monsoon raised fresh concerns about the strength of an economic revival.

Vipul Verma is CEO, Moneyvistas.com.

An analysis of the market performance one month prior and a month after the Budget announcement in the past 10 years by Morgan Stanley showed that the Bombay Stock Exchange index, Sensex, had been in the positive territory on just three occasions.

“The market may provide a positive surprise since we expect the finance minister to deliver a reform-oriented Budget,” the report by Morgan Stanley stated.

Last year, the Sensex had dropped nearly 7% a month after the announcement of the budget on 29 February 16,300 points from 17,579 points on the budget day.

Similarly, the years when the market saw a decline a month after the budget announcement were, 2007( down 0.4%) 2005 (3%) 2003 (5%), 2002 (2.6%), 2000 (7.5%).

In 2001, the index had plunged the highest by 11.4% a month after the budget announcement, the data showed.

Despite the history not favouring an upward movement in the market in the month after the budget announcement, Morgan Stanley’s India strategist Ridham Desai opined that this time history may not necessarily be relevant.

The benchmark index had actually surged after budget announcement in 1999, 2004 and 2006. The index had gained as much as eight per cent in 1999, 7.3% in 2004 and 6.9% in 2006, the data showed.

“We are bullish on the budget as the government is likely to put up an investor friendly announcement. And despite some surprises, the budget is likely to lift up market sentiment,” Geojit BNP Paribas Financial Services Alex Mathews Research Head said.

In 2006, the Sensex crossed the 11,000 level a month after the financial document was tabled in Parliament from around 10,000 levels on the budget day. While, in 2004 the index had crossed the 5,000-mark from around 4,800 levels prior to the event, the analysis revealed.

Mathews said as the disinvestment programme depends on a positive momentum in the market, the government is unlikely to disturb the growing investor confidence by any drastic steps.

“We think the budget will provide positive signals, indicating the government is keen to make progress in policy reforms,” the Morgan Stanley report stated,

However, Bonanza Portfolio assistant vice president Avinash Gupta prefered to maintain a neutral outlook on the market performance post the budget.

“Market has already built in expectations from upcoming budget and most of the movement is likely to be sector specific depending upon the announcement.”

PTI

The government’s annual budget on 6 July is expected to spell out bold plans to improve overburdened roads, ports and other infrastructure to help boost growth.

However, annual monsoon rains, which are a lifeline for the country’s trillion dollar economy, have weakened and are expected to be below normal, the government said on Wednesday.

The farm sector, which contributes about a sixth of economic output, is heavily dependent on the June-September rains for irrigation. Lower farm incomes usually squeeze demand for industrial goods.

A similar trend was witnessed in key global markets as well and, except China, all the major bourses ended with losses. In the US, the Dow fell 3%, the S&P lost 2.6%, and the Nasdaq dropped 1.7% for the week.

That was despite the emergence of encouraging data. Data ranging from production/manufacturing and jobless claims to inflation measured by consumer and wholesale prices sent out a message that the US economy is on the track to recovery.

The data also put to rest growing fears of inflationary pressures and chances of an untimely increase in interest rates by the US Federal Reserve, or Fed.

Bond yields also eased, giving much-needed comfort to stock markets. The only concern last week was a pullback in commodity prices, which confused investors a bit. In a broader perspective, the minor pullback in commodity prices is not a bad sign for stock markets.

This week is again going to be important in the US from an economic data point of view. Investors will assess data on new and existing home sales that could point to whether the battered housing sector has bottomed out. This is a very significant indicator and any positive surprises could actually give a boost to US markets, which in turn would lift the global bourses as well. Since the second quarter is drawing to a close, investors would also keep an eye out for profit forecasts or warnings, although lower second-quarter earnings compared with the year-ago period are broadly discounted.

Investors would place their bets on third-quarter earnings and forecasts. Most importantly, the Fed is widely expected to leave interest rates unchanged after its two-day meeting ends on Wednesday.

Still, investors will closely check its statement for clues to the central bank’s economic outlook. Any positive indications from the Fed would boost the markets. Investors would be most interested in indications about the Fed’s approach towards interest rates and how long it can hold rates steady.

Back home, there are no major economic indicators due to be released other than the weekly inflation number and foreign exchange reserves data. However, since the Union Budget is drawing nearer, there would be some nervousness among investors. The positive aspects of the Budget have already been discounted and caution ahead of the Budget would restrict any gains. I am not expecting any big fall either, as there is enough buying interest that would bring bargain hunters to the fore at every sharp decline. In a nutshell, fundamentally, the markets are likely to consolidate with an eye on global cues.

Technically, the markets are likely to start the week on a cautiously positive note and may edge up initially. In terms of the Bombay Stock Exchange (BSE) Sensex, the gains are likely to extend to as much as 14,728 points, which is a meaningful resistance level.

I have not used the term “strong” but the term “meaningful” instead, because this resistance level is derived from a prominent technical study, whose interpretation suggests that following this level, the Sensex would need fresh triggers to maintain a positive bias and if those triggers are absent, it may lead to profit selling.

A meaningful breach of this level would mean more gains, as the Sensex would then aim for 14,996-15,010 levels. I think that the markets should find adequate resistance here and may even consolidate. However, a close above this level would see the Sensex moving to 15,127, followed by very strong resistance at 15,312 points.

On its way down, the Sensex is likely to get its first support at 14,182 points, which is a strong level. However, any close below this level should be considered a sign of weakness, with further declines in sight. The next important support will come at 14,040 points, which needs to be monitored closely because a fall below this point would mean bearish sentiment for some time to come. The next critical support would come at 13,565 points.

For the S&P CNX Nifty, resistance is expected at 4,395 points, which is a critical level. If the Nifty crosses this level, the next resistance would come at 4,430 points, followed by strong resistance at 4,520. On its way down, the Nifty would test its first support at 4,253 points, followed by 4,207. It has strong support at 4,095 points.

Among individual stocks, Housing Development Finance Corp. Ltd, or HDFC, Ltd and Dr Reddy’s Laboratories Ltd, Tata Consultancy Services Ltd, or TCS, look good on the charts. HDFC, at its last close of Rs2,294.70, has a target of Rs2,340 and a stop-loss of Rs2,258. Dr Reddy’s, at its last close of Rs734.70, has a target of Rs756 and a stop-loss of Rs712. TCS, at its last close of Rs379.80, has a target of Rs394 and a stop-loss of Rs354.

Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at  ticker at livemint.com

Image from Hindu Business Line

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In May, after the general elections propelled the United Progressive Alliance into power, the Indian stock markets reacted with undisguised glee; the Sensex recorded its largest-ever single-day rally in percentage terms, rising 2,110 points.

The sentiment was predicated, as so much is in economics, on expectations: The stock markets expected the UPA, now free of its Communist partnerships and even otherwise unhindered in Parliament, to push through market-friendly policies, and thus it reacted with optimism.

Another, similar milestone now looms on July 6, when Pranab Mukherjee presents the Budget in Parliament, and already the market seems to be girding its loins for another huge leap. Various sectoral indices have steadily risen over the last few weeks, and the markets seem to expect vast government spending that will revitalise economic growth, which has sagged from its heyday of 9% two years ago.

Some analysts worry that the market, in fact, may be expecting too much,and that the Budget may not be able to live up to those towering expectations.

In this podcast, we talk to two in-house Mint experts to gauge the Sensex-Budget relationship. Historically, how has the Sensex reacted to the Budget? What exactly does the Sensex expect this year? What, on the other side, are the challenges that the Finance Minister will face in living up to those expectations?
How does the economic concept of expectation even work in theory and in the real world?

Our guests — Niranjan Rajadhyaksha, Mint’s managing editor and author of the weekly Cafe Economics column; and Manas Chakravarty, Mint’s consulting editor and author of the Capital Account column — answer these and other questions, and in the process shine a light on the beast we call the Sensex.

Samanth Subramanian

Take a look at the accompanying chart. It compares the huge rise in the Sensex since the beginning of March with the rally in the second half of 2007.

The first thing you notice is how extraordinary the recent run-up has been, with the Sensex rising much higher in a shorter span of time. A casual glance would suggest the market in the last few months has been like the 2007 market on steroids.

What’s more, it’s not just the Sensex that has had a great rebound. Equity markets across the world have had a remarkable rally. Commodities have followed suit and so have other risk assets. The most obvious example is the return of crude oil prices to levels above $70 (Rs3,346 now) a barrel.

Manas Chakravarty looks at trends and issues in the financial markets. Your comments are welcome at  http://budget.livemint.com/sensex-budget/?p=9 The Bombay Stock Exchange’s (BSE) benchmark index, the Sensex, gained for a 14th consecutive week on buying by foreign funds. As expected, however, the markets showed signs of weakness from the middle of the week and declined on Thursday and Friday.

The signs of fatigue had been expected. One noticeable change is that investors have started reacting negatively to even positive news—a trend not limited to India alone. News that US banks would repay funds received under the so-called Troubled Asset Relief Program was encouraging as a sign of recovery in the US financial system. But the market reacted negatively.

In India, the monthly index of industrial production data for April, which was well above expectations, triggered selling because investors were concerned that the numbers could be an inflationary signal that may dampen prospects of interest rate cuts. I do not share the concern because these are preliminary signs of economic recovery rather than overheating. The behaviour of investors shows that the markets are now getting overheated following the massive rally beginning in March.

This leads to the question: Does this mean that the bull run is now over and it is time to sell? My answer is NO. Neither is the bull run over nor is this the time to wind up. I would not rule out moderate profit selling, but I strongly feel that unless something major happens, fundamentally, the market will not move considerably in either direction until the budget is presented next month.

The budget has been a non-event for the last three-four years because the compulsions of coalition politics led to a pause on most economic reforms. However, with a stable government emerging from the Lok Sabha elections, the market is clearly hoping for a strong budget that would herald a new era of economic reform.

Until the budget, hope would keep the market up and any major wave of selling would be countered by bargain hunting. The actual budget proposals would set the next course of action for investors.

Global market trends and economic data also would dictate day-to-day share price movements. With no major economic data due this week in India, the markets would likely take their cues from overseas.

Globally, the markets will watch data on US housing starts, the Consumer Price Index (CPI), the Producer Price Index (PPI) and other numbers including industrial production and capacity utilization as well as weekly initial jobless claims.

Rising oil prices and higher bond yields are also major concerns for the US economy that would be monitored very closely. The yield on the benchmark 10-year US treasury note briefly touched 4% after Wednesday’s auction of 10-year notes. That stoked fears of a possible reversal of the rate cut cycle initiated by the US Federal Reserve to boost a recession-bound economy.

If yields remain high this week, market sentiment could be severely dented. In such circumstances, inflation data measured by both CPI and PPI would be watched even more closely than usual.

Technically, the markets are showing signs of consolidation. Unless the key indices break their critical resistance or support levels, there would be no clear direction for the bourses. For the Sensex, the critical resistance level is at 15,589 points. If the index closes above this level on good trading volumes, the trend would be bullish.

Other important resistance levels for a rising Sensex would be 15,398 and 15,517 points. On the downside, the critical support level is at 14,591 points and any close below this level would be bearish. However, the market will have intermediate support levels at 15,147 points and 14,929 points.

In terms of the S&P CNX Nifty, the critical resistance is at 4,694 points. Before that, there would intermediate support at 4,624 and 4,663 points. On the downside, the critical support is now at 4,351 points. Before that level, support is expected at 4,557 points and 4,401 points.

Among individual stocks, Bharat Forge Ltd, Moser Baer India Ltd and Adlab films Ltd look good on the charts. Bharat Forge, at its last close of Rs181.10, has a target of Rs192 and a stop-loss of Rs168. Moser Baer, at its last close of Rs105.85, has a target of Rs116 and a stop-loss of Rs98, while Adlab Films, at its last close of Rs405.20, has a target of Rs423 and a stop-loss of Rs392.

From the previous week’s recommendations, Oil and Natural Gas Corp. Ltd touched a high of Rs1,193.70, but missed it target of Rs1,220 and remains a valid recommendation for this week. Jindal Steel and Power Ltd touched a high of Rs2,629, gaining 15.5% over the previous week. Needless to say, the stock met it target very easily. ABG Shipyard Ltd triggered its stop-loss.

Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at