Market undertone improves but event risk looms
After posting their biggest weekly gain in 2012, Indian equities markets head into another week with a bullish undertone. A series of crucial events and data releases could determine a clear direction.
Last week, Indian markets posted their best weekly gain since December 2, 2011, along with most global markets, on hopes that policymakers in Europe and the US would take steps to spur economic growth. The benchmark 30-share Sensex gained 4.72 per cent during the week to end trade at 16,719, while the broad-based Nifty also added 4.68 per cent to 5,068. The key indices on Friday closed above the 200-day moving average, which is being viewed as a bullish signal by analysts.
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Domestically, a set of economic data, due to be released this week, will be important as it will set the stage for further monetary easing from the Reserve Bank of India (RBI) at its meet on June 18.
|KEY EVENTS FOR THE WEEK |
These events and data releases
will give a clear direction to
|* June 12: IIP data for April|
|* June 14: Inflation data for May|
|* June 17: Greece elections|
Investors have started to build up expectations of at least a 25 basis points cut in interest rates to boost the economy, which grew at its lowest pace in nine years in the first three months of this year. The data to be released during the week, including the index of industrial production and inflation, will help investors firm up these expectations.
Whether last week’s rally continues will also depend on policy action taken by European authorities towards Spanish banks’ demand for recapitalisation. Also, the outcome of Greece elections, slated for June 17, will decide whether the nation continues with austerity measures and remains a part of the Euro zone.
Data emanating out of the US and Europe during the week, including employment, industrial production and inflation, could also have impact on investor sentiment. Market participants will watch for more stimulus in the form of quantitative easing (QE 3) by the US Federal Reserve at its meeting on June 19 and 20.
“It’s too early to say that share markets have bottomed and the next few months are likely to remain volatile as worries about a deep recession in Europe linger and slower growth in China and the US linger," wrote Shane Oliver, head of investment and strategy at Australia-based AMP Capital.
Oliver believes the market direction will be determined by the outcome of Greece elections and concrete policy moves from European leaders, along with easier monetary policy from the European Central Bank and possibly the US Fed.
A technical analyst at HDFC Securities says as the markets managed to close above crucial resistance, bulls have again gained an upper hand and the markets could see further uptrend. The brokerage says for the market to move further up, it will be necessary for the Sensex to hold the 16,544-16,277 levels and the Nifty to stay above 5,020-4,949 levels.
The Sensex, after declining 6.4 per cent in May, is up 4.7 per cent so far this month. The market has declined nine per cent from this year’s high touched on February 21.