The panic that has been set off will build up the pressure on the market and could result in the Nifty going down to 4,800 levels eventually
This week, US politicians reached a deal to raise the debt ceiling and save the country from defaulting on its fiscal obligations, shifting the focus to expenditure cuts that could see a slowdown in the world's biggest economy. The likely impact on other economies together with European debt concerns that now threaten to engulf Italy and Spain rocked stock markets globally, cutting off more than 5% in the Indian markets this week. This is the biggest weekly decline in the domestic market since October 2010.
The week began with small gains on Monday following news of the US debt deal. Mixed domestic indicators led the market lower the next day and weaker-than-expected results by DLF and Bharti Airtel put the indices under pressure again on Wednesday. While the market opened firm on Thursday, higher food inflation data pulled it down by the close.
The rout in the US and European markets on Thursday dragged the Asian markets sharply lower on Friday and India was among the major losers, losing more than 2%. On a weekly basis, the Sensex tumbled 891 points to settle at 17,306 and the Nifty declined 271 points to 5,211.
The market is likely to remain down for a few days before there is a short rally. For the uptrend to continue, it is essential that the Nifty closes above the 5,400 level.
Late on Friday, Standard & Poor's downgraded the US government's sovereign credit rating by a notch from 'AAA' to 'AA+'-an unprecedented move that will hurt investment sentiment even harder. However, S&P affirmed the 'A-1+' short-term rating.
All sectoral gauges ended lower, and the BSE Realty and BSE Metal indices both tanked by 7%, while BSE Oil & Gas and BSE PSU each lost 2%.
The only gainer on the Sensex this week was ONGC (up 3%). The top losers were Sterlite Industries (down 11%), Reliance Communications, DLF, Mahindra & Mahindra and Jaiprakash Industries (all down 9%).
BPCL (up 7%), ONGC (up 3%) and Cipla (up 1%) were this week's gainers on the Nifty. Reliance Capital (down 14%), Sterlite Industries (down 11%), Sesa Goa, RCom (down 10% each) and M&M (down 9%) were the major losses.
Food inflation climbed up again to 8.04% for the week ended 23rd July, from a 20-month low of 7.33% in the previous week. The rise was mainly due to higher prices of onions, fruits and milk.
Also this week, the Prime Minister's Economic Advisory Council lowered its growth forecast for the current fiscal to 8.2%, below the government's target of 8.5%. It projected headline inflation to remain a high 9% till October, saying it expects price pressure to start easing from November, to around 6.5% by March 2012. The Council stated that while pressure from food inflation had fallen recently, the rate of price rice still remained quite high with the possibility of a further surge in the coming months.
The intermediate trend has turned down from sideways, hence selling into rallies is advisable
SHORT term: Down MEDIUM term: Down LONG term: Up
The bulls were hammered into submission once the Nifty broke below the trendline support (in black, pegged at 5,468 points). In a week that was dominated by the bears, the Nifty crashed a whopping 271 points (-4.94%). Volumes were marginally lower during the fall, but the fall of over 7.5% over the past couple of weeks is a cause of concern for the bulls. All sectoral indices ended in the red. BSE Reality (-7.47%), BSE Metal (-6.81%), BSE IT (-6.45%) and BSE Teck (-5.91%) led the decline, whereas BSE PSU (-1.78%) and BSE Oil & Gas (-1.85%) held on somewhat.
The Histogram MACD has fallen below the median line due to the sharp fall this week, implying that the intermediate term bias which was sideways has turned down. It has breached the 20wema mark pegged at 5,581 points, after bouncing from it, which confirmed our fears that a failure to take out the resistance line would nullify the efforts of the bulls.
A fall below the trendline support resulted in a sharp drop as was envisaged last week (we expected 5,300 points), but the global developments accentuated the drop. This has broken the backbone of the bulls and some serious and desperate efforts are required from them to stem the rot.
From the developments last week it is very clear that the bears have gained the upper hand and that rallies will be met by selling pressure. The bulls have lost the plot, and unless and until they regain the trendline (in black) they will continue to be under severe pressure. The S&P Nifty hit the 50% retracement (5,127 points) of the rise from 3,918 to 6,335 points, and the 61.8% retracement level is pegged at 4,842 points which should be a crucial support.
Here are some key levels to watch out for this week.
The bears have battered the bulls into submission and it will be difficult for them to recover in the near future. Resistance in rallies will be pegged at 5,293 and 5,369 points, this week. The intermediate trend has turned down from sideways, hence selling into rallies close to the Fibonacci retracement levels of the recent fall from 5,740 points is advisable. Volatility is likely to continue in the weeks ahead. Sell into the rallies.
(Vidur Pendharkar works as a consultant technical analyst and chief strategist with www.trend4casting.com.)
The downgrade reflects the rating agency's opinion that the fiscal consolidation plan which Congress and the administration recently agreed to falls short of what would be necessary to stabilise the government's medium-term debt dynamics
Washington: In an unprecedented move, Standard & Poor's (S&P) downgraded the US government's 'AAA' sovereign credit rating-a development which raises concerns that investors will lose confidence in its economy, reports PTI.
"We have lowered our long-term sovereign credit rating on the US to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.
"We have also removed both the short- and long-term ratings from CreditWatch negative," the credit rating agency said in a statement.
The downgrade, it said, reflects its opinion that the fiscal consolidation plan which Congress and the administration recently agreed to "falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."
"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on 18th April 2011," the agency said.
"Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon."
Other prominent credit rating agencies-Moody's Investors Service and Fitch Ratings-affirmed their AAA credit ratings even as president Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moody's and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.
S & P said: "The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case."
"When comparing the US to sovereigns with 'AAA' long-term ratings that we view as relevant peers-Canada, France, Germany, and the UK-we also observe, based on our base case scenarios for each, that the trajectory of the US' net public debt is diverging from the others," it said.
Including the US, S&P estimates that these five sovereigns will have net general government debt to gross domestic product (GDP) ratios this year ranging from 34% (Canada) to 80% (Britain), with the US debt burden at 74%.
By 2015, S&P projects that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the US debt burden at 79%.
"However, in contrast with the US, we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015," it said.
On Monday, S&P will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors, the statement added.