Weak sentiment may cause volatility

MARKET OUTLOOK

The key share indices are likely to be volatile on Monday with a negative bias, as investor sentiment continues to remain weak, dealers said. High inflation and low industrial growth numbers for January may continue to weigh on the bourses.

The investors are likely to book profits at every rise, maintaining caution ahead of the US Federal Reserve's monetary policy meet on Tuesday. Cues from overseas markets will play an important role in determining market direction.

The Sensex closed the week's last trading day at 15,760.52, up 403.17 points or 2.6 per cent from Thursday. The Nifty ended at 4,745.80, up 122.20 points or 2.6 per cent.

"The overall trend is weak. The Nifty has support between 4580 and 5019. There is an important support at 4580, below which the Nifty can test its January low of 4448," said Manas Jaiswal, technical analyst, Emkay Shares.

Jaiswal, however, does not rule out a bounceback, with a target of 4800 next week. The weak trend would change only if the Nifty closes above 5050, which is its 200-day moving average, he added.

The Sensex has a strong support at 14500, dealers said. In volatile markets, the investors are more likely to turn to defensive sectors such as pharmaceuticals.

Among the pharma shares, Ranbaxy Laboratories looks strong on the technical charts. The stock may touch Rs 532-540 next week, a technical analyst said.

Bank shares are seen firm after Finance Minister P Chidambaram detailed how the Rs 600 billion farm loan waiver would be refunded to banks.

The farm debt waiver will be funded from tax buoyancy and banks will be reimbursed Rs 250 billion in cash from July 1 this year to Jun 30, 2009. Another Rs 150 billion, Rs 120 billion and Rs 80 billion will be made available for the farm loan waiver in successive years.

"The move is positive, particularly for PSU (public sector unit) banks. The bad loans account for banks' non-performing assets. With the funding, banks' NPAs will reduce and with a specified timeline, they can start in this quarter (Jan-Mar) itself," said Mangesh Kulkarni, analyst, Almondz Global Securities.

Information technology shares are seen moving along with the broad market as the prevailing uncertainty continues to keep big investors on the sidelines, analysts said.

While there is negative sentiment following the increasingly hawkishness about client spending in 2008, the relief from the recent rupee fall will be limited. The trading volumes in IT shares have hit their lowest since September.

The fears of a recession continue to haunt the US economy after retail spending fell in February, analysts said.

More data showing decline is expected.

A number of IT exporters, including Tata Consultancy Services, MphasiS, and Polaris, have also witnessed diffidence in clients' actual spending.

Clarity is likely to emerge only after Infosys Technologies declares its fourth quarter result and issues guidance for 2008-09 (April-March) on April 15, analysts said.