Market now turns to Nifty for support at 3000

RBI's Credit Policy Review On Oct 24 And Signals From Cos' Q2 Show To Decide Direction

LIKE a dying man clutching at straws, investors have not given up hope altogether. After the benchmark Sensex fell below the 10000-mark on Friday, hopes are pinned on the Nifty's much-talked about technical support of 3000, which is expected to trigger a rebound driven by short-covering.
    Investors will also keenly watch the midterm credit policy review on October 24, as the liquidity in the system continues to be tight despite the central bank's monetary measures. In the past couple of weeks, RBI has cut the cash reserve ratio (CRR) — the amount of money that banks have to maintain with the central bank — by 250 points and relaxed the statutory liquidity ratio (SLR) requirements. Market watchers expect RBI to announce a cut in the repo rate — the rate at which it lends to banks — on the policy day. This is one move that will signal easing interest rates.
    Even reputed corporates have been borrowing short-term money at exorbitant rates. The high interest rates are forcing many of them to scale down their expansion plans.
    On Friday, the Nifty ended at 3074.35, down 194.95 points, or 6%, over the previous close. In the US too, markets ended weak on Friday, but the losses were limited compared with the previous sessions, sparking hopes of a bounceback early next week.
    "The 3000-level on the Nifty is a strong support, though the bias in market direction is clearly negative, with several index stocks trading below their 52-week lows," said Geojit Financial Services head of technical and derivatives research Alex Mathews.
    Most participants advise trimming exposure to equities, as the outlook for the next few months is negative, with foreign institutional sales showing no signs of ebbing. On Friday, foreign institutions net-sold Indian shares worth over Rs 900 crore.
    French broking house CLSA, in its technical research note, said, "We are worried that price action had formed a head-and-shoulders pattern and the risk was high for a trip towards the June 2006 low at 9000."
    Known as a reliable trend-reversal technical indicator, the head-and-shoulders pattern is useful for setting targets for imminent declines. "The break of key support at 12350 has triggered the topping pattern and our target range for a low extends from 8799 to 9000. A crash type decline could target a fall as low as 7500-7656," CLSA added. On Friday, the Sensex closed at 9975.35, down nearly 6%, or 606.14 points.
    Many market players forecast a limited decline from current levels and believe that a further decline in stock prices will present stock-picking opportunities for investors in the long run. "The downside is limited. But any upside will not occur until there is an uptrend in corporate earnings growth, probably during mid-2009," said Credit Suisse, in a recent report.
    Disappointing quarterly results could spark the next bout of selling. The notable earnings announcements this week include Idea Cellular, Indian Hotels, Hero Honda Motors, Jaiprakash Associates, Pantaloon Retail, Reliance Natural Resources, Zee Entertainment Enterprises, Reliance Industries, Reliance Infrastructure, Reliance Power, IDFC, Sesa Goa, Wipro, ACC and GAIL.
nishanth.vasudevan@timesgroup.com