Index outlook: Market looks for a foothold

Most global benchmarks, including the Sensex and the Nifty, moved higher last week, undaunted by the terror attacks in Paris.

Indian indices appeared to stabilise last week but the rally so far is not strong enough to make us conclude that the worst is over. The derivative expiry scheduled this Thursday can cause some turbulence in the truncated week ahead. Since the market is closed on Wednesday, traders might try to square their positions in the early part of the week, making prices whipsaw in both directions.

The government was very active last week, making a slew of announcements on policy changes. These include proposals to sell stakes in PSUs, new policy regime for oil and gas exploration, interest rate subvention for exporters, release of the Seventh Pay Commission report and a road-map for phasing our corporate tax exemptions. The last might not go down too well with investors as it will impact post-tax profits.

But markets were cheered by the Pay Commission recommendation of 23.55 per cent hike in salaries of government employees. This will give a boost to domestic consumption and stocks of autos and consumer durables therefore moved higher. Global markets also shook off their blues. Investors seem to have convinced themselves, at least for a week, that Fed rate hike will not have a material impact on equity markets.

The Dow and the S&P are once more drawing close to their life-time highs.

While that is good news, the actions of foreign portfolio investors rings in a note of caution. They have been selling in Indian equity so far in November, with net sales of $866 million.

Their selling in the debt market has been lower at $392 million in November. Net inflow for 2015 is now down to $3.8 billion in equity and $8.4 billion in debt.

This is 69 per cent lower than the sum received in the same period of 2014. India had received $39 billion of inflows in equity and debt in 2014.

The dollar has also been moving higher. This is bad for the rupee and can affect FPI flows.

The Nifty moved in a narrow range between 7,700 and 7,900 last week.

There is some stability in the daily oscillators, but the action next week has to be studied to determine the short-term trend.

The week ahead:  Immediate resistance for the Nifty is at 7,954 and 7,985. A rally in the early part of the week is unlikely to make headway beyond 7.985. Fresh short positions should be avoided above this level.

Targets on a move above 7,985 are 8,027 and 8,100. If the index moves lower after a brief rally in the early part of the week, downward targets are 7,714 and 7,539. Watch out for a reversal from the zone around 7,500.

Medium-term trend:  The medium-term trend remains down for Nifty. It is obvious that we are in the third or the C-wave of the move from 9,119.

This wave has the targets of 7,363 and 6,762. In other words, a less intense C wave can end just below the September low at 7,500. That is the best case scenario for Indian markets, once the Fed does its rate hiking act in December.

An intense decline after the event can make the index move on to the next target 7,363.

The Sensex too moved sideways and closed 257 points higher last week. The candle in the weekly chart is not strong enough to indicate that the short-term trend has reversed in the index.

The week ahead:  Immediate resistances for the index are at 26,307 and 26,811. Presence of the 50-day moving average at 26,330 makes the area between 26,300 and 26,350 an important hurdle for the index.

Traders can initiate fresh shorts if the index fails to move above this level. Downward targets are 25,453 and 24,985.

The medium-term trend in the Sensex is down. But it has key support at 25,300 and 24,400 that are important Fibonacci support levels. The medium-term outlook for the Sensex will deteriorate only on a strong move below 24,400.

The Bank Nifty index is trying to stabilise at lower levels now. The index has immediate resistance at 17,500. Short positions should be closed on a move above this level. However, failure to move above 17,500 will mean that the index is heading down to 16,587, 16,410 and 16,192.

Most global indices closed higher last week, wiping out the losses recorded in the previous week. CAC, the French benchmark index closed 2 per cent higher in a piercing candle formation.

US indices raced higher as fears of excessive volatility following Fed rate hike receded. The CBOE volatility index declined 22 per cent from the high of 20.5 reflecting the reversal in the mood among US investors.

The Dow reversed to gain 578 points over the week. It is however yet to cross above the 18,000 mark. Once the index manages to do so, the path to 18,351 — its life-time high — will become open. Investors need to keep an eye on the dollar.

The dollar index is moving close to the 100 mark on signs of strength in the US economy. Break above 100 will cause a lot of pain to emerging market currencies including the rupee.

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