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Markets week ahead: Can RBI's policy outcome lead Nifty 50 to 19k?

Last week, while the Sensex crossed the 63,500 mark, the Nifty 50 inched closer to the 18,900 level.  (REUTERS)Premium
Last week, while the Sensex crossed the 63,500 mark, the Nifty 50 inched closer to the 18,900 level. (REUTERS)

  • In the coming week, RBI's monetary policy outcome will play a major role in setting the tone for domestic equities. With inflation easing in October, expectations of 35 basis points instead of the fourth 50 basis points hike in December policy is on cards.

Indian markets witnessed a strong rally this week with Sensex and Nifty 50 hitting a fresh historic high driven by a slide in crude oil, robust GDP data, and Fed's dovish stance. However, the week ended in red as investors carried broad-based profit booking. Both Sensex and Nifty 50 snapped an eight-day winning spree on Friday. In the coming week, RBI's monetary policy outcome will play a major role in setting the tone for domestic equities. With inflation easing in October, expectations of 35 basis points instead of the fourth 50 basis points hike in December policy is on cards. While the Sensex crossed the 63,500 mark, the Nifty 50 inched closer to the 18,900 level. Will the coming week result in Nifty 50 touching 19,000 for the first time?

On Friday, Sensex closed at 62,868.50 down by 415.69 points or 0.66%. While Nifty 50 shed 116.40 points or 116.40% to end at 18,696.10. The slope in Indian equities was due to broad-based profit booking in large caps. Heavyweights such as M&M, HUL, Maruti Suzuki, Nestle, HDFC, Infosys, TCS, Asian Paint, and Bajaj Finance witnessed huge selloffs. Auto stocks took the most beating, while notable downside was seen in IT, banking, and consumer durables stocks. Metal stocks outperformed their counterparts. While midcap and small-caps indices gained by nearly a percent.

On December 1, the Sensex touched a new lifetime high of 63,583.07, while the Nifty 50 also clocked a fresh historical high of 18,871.95 before correcting.

Both Sensex and Nifty 50 have climbed by nearly 4% each between November 22 to December 1. They extended record-high gains during these days.

Vinod Nair, Head of Research at Geojit Financial Services said, "Bulls continued their quest for gains, hitting fresh record highs, boosted by falling crude, robust GDP numbers, and a dovish stance by the Fed chair. However, the rally was halted by negative cues from global counterparts and broad-based profit booking in large caps."

Nair added, "The Indian economy’s growth of 6.3% in Q2 was in line with the RBI’s forecast, while the manufacturing PMI rose to 55.7 in November. On the contrary, auto stocks came in lower than expected due to weaker exports and sequential de-stocking. On the global front, investors' concerns were allayed as the Fed chair adopted a dovish stance. Declining manufacturing activity in the US is proof that the central bank’s policy tightening has started to show results, which in turn will encourage the Fed to keep rate hikes at bay."

Meanwhile, Indian forex reserves recorded a rise for the third week in a row. In the week ending November 25, forex reserves came in at $550.14 billion rising by $2.89 billion, as per RBI's data. In the previous week, the reserves were around $547.25 billion.

However, at the interbank forex market, the rupee could not sustain its positive opening on Friday and closed lower at 81.3175 against the US dollar compared to the previous day's print of 81.20 per dollar. Notably, this week, the local currency has managed to climb by 0.5% driven by a strong bull run in domestic equities and the US Federal Reserve Chair Jerome Powell's less hawkish comments.

As for foreign portfolio investors (FPIs), they infused 36,239 crore in the equities market during November -- which is the second highest monthly buying in the current year after August when FPIs invested 51,204 crore. Also, the start of December has been on a positive note with an inflow of 7,437 crore in the equities.

What to expect in the week of December 5 to 9th?

According to Nair, in the coming week, market movement will be determined by the outcome of the RBI policy meeting, which is expected to moderate its pace of rate hikes.

He added, given the underlying high valuation, Fed policy, and stringent Chinese COVID restrictions, the market will remain highly sensitive in the coming weeks.

Further, Apurva Sheth, Head of Market Perspectives, at Samco Securities pointed out that a number of significant events are scheduled for the following week.

On the global front, firstly, there are statistics on the trade balance between the US and China, two significant economies. Additionally, China will disclose its MoM and YoY inflation rates. Sheth said, "these developments will be closely watched by investors throughout the world since they could decide the direction that the global indexes go."

At home, Sheth said, "the focus would be on the RBI's interest rate decision. The CPI fell below 7% in October after three straight rate increases of 50 basis points. As a result, the market anticipates a rate increase of 35 basis points rather than 50 basis points. The primary monitorable will be the MPC's forecasts and views on inflation and economic expansion."

Giving a technical outlook on the Nifty 50, Sheth said, "the Index is moving in a higher top higher bottom formation on the daily chart indicating a sustained-up trend. At the start of the week, prices register their new lifetime high and later on continued to move higher. On Friday’s session, Nifty showed the 1st sign of profit booking when prices slipped below 19,800 levels with a bearish candle on the daily chart."

On the daily chart, Sheth pointed out that NIFTY50 has completed the Bearish Crab harmonic pattern at 18,887.60 levels. The momentum oscillator RSI (14) on the daily chart has reached the overbought zone and presently has hooked lower below 70.

"The bulls need to surpass 18,900 levels to gain bullish momentum as the options seller is active near 19,000 levels with increased OI. The support for the Index is placed near 18,500 and any move below the same will extend the fall to 18,380 levels," Samco's expert added. Also, he believes the celebrative mood at Dalal Street should continue with stock-specific action likely to command investors’ attention, especially in IT, Metal & Cement stocks.

As per Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, going forward, D-street will focus on macro trends. Going ahead, markets may be dominated by global news flows and steps taken by different governments to tackle their economies. On the economy front, Q2FY23 real GDP grew by 6.3%, while GST collections for October (collected in November) stood at Rs1.469 lakh crore (September: Rs1.517 lakh crore).

ICICI Securities in its weekly market outlook note said that "We maintain our structural positive stance and expect index to gradually head towards 19400 in coming weeks while midcaps to outperform in coming weeks. Strong support is now placed at 18300 levels. Use dips to create long positions."

In their technical view, ICICI Securities stated that the relative ratio of NiftyIT against Banknifty has resolved at 3 month high, the first time since May 2022 indicating that IT may relatively perform better than banking in the short term. That being said, IT, Telecom, Infra, Metal, and Consumption are preferred sectors.

Among large-caps, the stock brokerage's preferred picks are -- Reliance Industries, TCS, SBI, Ambuja Cement, Adani Ports, Tata Steel, Tata Motors, and DLF. While among midcaps, the preferred picks are CUB, Coforge, Sonata Software, Concor, Polycab, Cummins India, JK Cement, Bhel, Supreme Industries, Tejas Networks, Brigade Enterprises, Timken, and KNR Construction.

RBI is scheduled to being its bi-monthly monetary policy meeting from December 5 to 7th. The six-member monetary policy committee will announce its outcome on December 7th.

Since May 2022, the central bank has hiked the repo rate by 190 basis points to tame multi-year high inflation. Currently, the policy repo rate stands at 5.9%, while the standing deposit facility (SDF) rate stands adjusted at 5.65%. Whereas, the marginal standing facility (MSF) rate and the Bank Rate to 6.15%. MPC remained focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.

In October, India's CPI inflation eased to 6.77% from its five-month high of 7.41% in September.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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