Nifty: No fireworks beyond 9,000; Budget to set tone

The National Stock Exchange’s Nifty is trading at new highs. In January so far, the index has risen about 6.5 per cent, particularly spurting on the Reserve Bank’s surprise repo rate cut of 25 basis points. The rally has unfolded amid signs of cooling inflation and recent positive global announcements. After RBI’s rate cut announcement, the European Central Bank’s (ECB’s) asset-purchase programme (of roughly Euro 1.1 trillion, or Euro 60 billion a month, until September 2016) should provide further liquidity to sustain this rally. In the current expiry week, we expect the Nifty to trade in a range of +/- 1-2 per cent, as focus will be on rolling over the position. A few of the key Nifty constituents are yet to announce their earnings for the December quarter of 2014-15; these will create some volatility.

Going into February, we expect market participants to look for cues from the RBI policy meeting, pending December quarter results and, above all, the Union Budget. However, with RBI already pleasing the Street with its recent rate cut, expectations from the meet are low. The governor’s commentary will be the sole highlight. The ongoing result season will end by mid-February, and will be followed by announcements of data for wholesale and retail inflation in January, expected to decline from the previous quarter. Till then, we do not expect the Nifty to breach the vital psychological resistance of 9,000.

All eyes are on the coming Union Budget, which should enunciate the government’s reforms road map. Market direction would be led by the government’s reform agenda and crucial legislation expected to be rolled out by the central government in the Budget session (February 28) of Parliament.

Technically, Nifty has been in a strong uptrend for the past nine months, defined by a regulation upward sloping trend channel that is now nearing its upper boundary. After a quick correction in December, the index has exhibited a stellar rally of 800 points in merely 13 trading sessions, on the back of robust institutional flows and bullish market events. Having said that, the cycle seems to be nearing completion, as accompanying momentum indicators have begun to show signs of weakness, with prominent negative divergences. Market breadth indicators are also showing divergence on the back of underperformance by mid-cap and small-cap stocks. Key support is pegged at the December swing high of 8,625, below which the short-term trend could reverse. In the short term (1-4 weeks), it is prudent to maintain a cautiously bullish stance and also look to trim positions on rallies to 9,000.

Nifty Futures

niftyfutures.org@imediaone.com

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