Nifty may head towards 7,600. A close above 7,900 will be bullish
We had mentioned in the last week’s closing report that Nifty, Sensex were headed higher and that as long as Nifty stays above 7,800, it will be bullish. The Indian stock markets failed to stay above the threshold level of 7,800 and the major indices have been falling for most of the week. Friday was no exception and the Nifty fell by 1.05% to close at 7,781.90. Weekly losses of the major indices have been in the range of 2%. The weekly trends of the major indices in the markets are given in the table below:
On Monday, both the bellwether indices of the Indian equity markets opened on a firm note supported by hopes that the Goods and Services Tax (GST) bill will get passed during the winter session of parliament. However, concerns over the weak Asian markets, given the major fall in Chinese exchanges on Friday and a decline in country's industrial profits spooked investors in India. Furthermore, there were concerns ahead of the release of the upcoming macro-economic data like India's July-September GDP (gross domestic product) and eight core industries (ECI) numbers.
Lack of major triggers coupled with uncertainty over the upcoming US rate hike subdued the Indian equity markets as the major indices traded flat on Tuesday. Initially, both the bellwether indices of the Indian equity markets opened on a positive note following Monday's late night reforms initiated by the finance ministry along with market regulator and the Reserve Bank of India (RBI). Even a modest growth in the gross domestic product (GDP) for the second quarter, which showed a gradual recovery in the country's economy, cheered the markets. However, the gains were capped after a slowdown in demand was indicated by a lacklustre eight core industries (ECI) and purchasing manager’s index (PMI) data. Nevertheless, investors kept an optimistic outlook with the RBI announcing that it will maintain an accommodative stand on future rate cuts and that the economy is eventually limping towards a marked recovery.
Investors were hopeful that the European Central Bank (ECB) will announce a stimulus package during its next monetary policy meet slated for December 3, after latest data showed that Germany's GDP growth has slowed.
The Indian central bank on Tuesday kept its short-term lending and borrowing rates unchanged, in line with expectations, balancing its policy action between a comforting, 7.4% economic growth for the second quarter of this fiscal and a creeping inflation. In its fifth bi-monthly monetary policy review of the current fiscal conducted by Reserve Bank of India Governor Raghuram Rajan here, the repurchase rate at which short-term credit is extended to commercial banks was left unchanged at 6.75%. Accordingly, the reverse repurchase rate, or the interest paid by the central bank for short-term borrowings, also stood frozen at 5.75%. The statutory liquidity ratio and cash reserve ratio that banks have to keep in liquid assets and government securities also remained intact. The Reserve Bank of India also kept its overall growth projection for 2015-16 at 7.4% and said the inflation target of 6% in January next year as set out in the previous policy update also was within reach, albeit with a slight downside risk.
Rajan, who expressed concern over farm growth and retail inflation, remained neutral on services sector and saw some ray of hope with a pick-up in factory output growth, said: "We're seeing an economy that is well and truly in recovery, but with areas of concern." The governor also sought once again to nudge the commercial banks to cut interest rates.
Negative macro-economic data coupled with a bearish outlook by the Reserve Bank of India (RBI) and an impending US rate hike decision subdued Indian equity markets on Wednesday. Initially, both the bellwether indices of the Indian equity markets opened on a firm note following US markets positive close on Tuesday. However, the gains were capped ahead of the release of key US macro data on employment. Investors were concerned over a slowdown in demand which was indicated by lacklustre eight core industries (ECI) data and purchasing manager’s index (PMI) data.
News from abroad on economic data, in particular the US economy was negative, coupled with devastating Chennai floods added to the cautious outlook of Indian investors on Thursday. The US manufacturing Index in November contracted to the lowest level since June 2009 when the economy was caught up in the worst financial crisis in decades. The manufacturing index, also known as the purchasing managers index (PMI), fall to 48.6 in November after registering 50.1 in October. A reading above 50 indicates the sector is generally expanding, while a reading below that level indicates contraction. The ISM's new-orders index and the production index decreased while the employment index rose. The dismal data shows that a strong US dollar and a weak global economy continue constraining factory activities. Of the 18 manufacturing industries, only five reported growth which included non-metallic mineral products, food and tobacco. A business survey conducted by the institute showed continued concerns about less demand from China and European markets were affecting the US business. Disappointment over the ECB’s measures to stimulate the economy led to huge a sell-off in the European markets and a sharp decline in the US markets on Thursday. ECB’s Draghi announced a modest reduction in the deposit rate paid on reserves held at the central bank – which is already negative but falls further from -0.2% to -0.3% – and a six-month extension of the end-date for the ECB’s €60bn-a-month quantitative easing (QE) programme.
The Asian markets opened deeply in the red on Friday morning on the chances of a US rate hike, which depressed Indian equity markets on Friday. Floods in Tamil Nadu have impacted automobile and information technology (IT) industries' centres which are located there. Besides Chennai floods, the upcoming key US-based macro-economic data -- the non-farm payrolls figures are causing global volatility and impacting the Indian markets too. Even the slow movement on getting key economic legislations passed during the ongoing winter session of Parliament has had investors turning cautious. On Friday, Sensex and Nifty fell by 0.96% and 1.05% compared to Thursday’s close. Markets are expected to be in a downtrend next week, barring occasional intraday rallies.
Out of the 27 main sectors tracked by Moneylife, top five and the bottom five sectors for this week were: