Technical chart signals broadly positive for Nifty: Will the rally continue?

Commenting on the ongoing domestic rally, Naveen Kulkarni, Chief Investment Officer, Axis Securities said “Indian Indices have recorded high yet again today, the Sensex rose to a record high for the fourth straight day while the nifty index rose for second straight day aided by an uptick in fast-moving consumer goods (FMCG) and metal stocks, tracking Asian peers that rebounded after China’s decision to support property developers to boost demand.”

“Indian markets closed in positive, even after witnessing some pullback in the second half of trade, after reaching record highs. Sectors that did well include FMCG, where the market is now pricing in lower pressure on gross margins as packaging and agri prices are expected to cool off from highs of Q2FY23. Metals also did well after Chinese regulators eased financing for property developers, a move expected to boost demand for metals. We expect Nifty50 to remain range bound in the near term but expect the broad markets to outperform as we believe that small and midcaps can catch up some part of their recent underperformance to large caps. Investments in the current environment should be stock specific, where investors should focus on good quality stocks with strong business models available at reasonable valuations,” said Naveen Kulkarni.

Considering the escalating unrest in China over the implementation of severe lockdowns, which may harm the sluggish global economy, Shrikant chouhan, Head of Equity Research ( Retail), Kotak Securities Ltd said “While the winning streak continued and key benchmarks scaled new highs, investors traded with caution in a slightly volatile market. There are worries about growing protests in China over the imposition of strict lockdowns, which markets fear could hurt the already slowing global economy. If the situation doesn’t improve, this could impact the market.”

He further added that “But since India is in a slightly better position compared to other major economies, investors are willing to bet big on us. Technically, the market is consistently holding higher high and higher low formation which is broadly positive. Hence the support has now shifted to 18550 from 18450. As long as the index is trading above 18550, the uptrend wave is likely to continue. Above which, the market could move up to 18750-18800.”

Mr. Mitul Shah – Head of Research at Reliance Securities said “Domestic equities closed slightly higher despite negative global cues. The Nifty gained 0.3%, while broader markets underperformed the main indices as Nifty Mid Cap and Nifty Small Cap fell 0.5% and 0.6% respectively. Majority of sectoral indices ended in the green. Nifty FMCG gained the most at 1.9% followed by Nifty Metal and Nifty Pharma which were up by 1% and 0.7% respectively. Nifty Reality (-0.3%) and Nifty Auto (-0.2%) were the primary laggards. Meanwhile, British Prime Minister Rishi Sunak has reiterated the UK’s commitment to an FTA with India. He stated that by 2050, the Indo-Pacific will deliver over 50% of global growth compared with just a quarter from Europe and North America combined.”

“The U.S. equities fell as widespread protests across China against the country’s zero-Covid policy sparked worries for the outlook of global growth. The S&P 500 fell 1.1% while Dow Jones and Nasdaq lost 1% each. The yield on the 10-year U.S. Treasury note rose to 3.703%, from 3.701% on Friday. Moreover, comments from New York Fed President indicated that interest rates could remain higher if inflationary pressure persists. The market is awaiting the Labor Department’s November jobs data to be released on Friday, which will likely to influence heavily into the Fed’s December interest-rate decision,” said Mr. Mitul Shah.

“The recent labour data and relatively lower inflation print will reinforce expectations for a smaller 50 bps Fed rate hike on Dec. 14 and perhaps signal a further slowing in the pace of rate increases early next year. The run-up to the exercise for the Budget is building up with job creation and a step-up in government CAPEX, being the primary focus. Though the economy is making a concerted effort to overcome the troubles along the way, fast-changing geopolitics is casting its long shadow. We expect a recovery in the coming quarters led by softening of commodity prices and monetary easing by central banks which is likely to boost demand going ahead. The movement of rupee, FII flow and crude oil prices will dictate trends in the near term, while volatility is likely to remain due to the endless Russia-Ukraine crisis and new COVID cases in China,” said Mr. Mitul Shah.

Having traded in a confined band and ending the day at 81.7200 against the dollar, the rupee on Tuesday was a little lower than it had been on Monday at 81.6700. Mr. Sriram Iyer, Senior Research Analyst at Reliance Securities said “Meanwhile, the offshore Chinese yuan gained over 1% amid hopes of a potential easing in China’s strict pandemic restrictions but did not have an impact on the rupee from an intraday perspective. The fall in the dollar index also had little impact on the markets. On the economic calendar, India’s September-quarter GDP data, due Wednesday, will be watched closely watched.”

Mr. Sriram Iyer said “However, the key trigger could come from the Fed Chair speech on Wednesday night. In the meantime, Rupee forward premiums rose marginally from multi-year lows. The 1-year implied yield rose three basis points and ended at 1.99% this Tuesday’s trade. Indian bond yields ended marginally higher on Tuesday as recovery in global crude oil prices weighed on investor sentiment. The benchmark 10-year bond yield ended at 7.278%, after closing at 7.274% on Monday. In the overseas markets, the dollar index eased as safe-haven demand triggered by widespread Covid protests in China started to ease. Traders will continue to assess the trajectory of Federal Reserve interest rate hikes when Fed Chair Powell speaks this week.”