No year-end party for D-Street; Nifty50 headed for a dull end
During the week gone by, the domestic stock market refused to go up in spite of a temporary truce announced on trade wars between the two global powers, China and the US. If such pragmatic decisions couldnt take markets higher, it was only logical that the global bourses would go lower. The fall was further accentuated with the arrest of Chinese company Huaweis CFO and daughter of the founder, which led to panic selling across the board fearing further trade war tensions.
Also, a sudden change of expectations in the interest rate scenario, especially in the US, is very surprising but bearish. Bond prices have started to rise, giving an indication that the US Fed will not increase interest rates at least in the short to medium term due to looming recession and slowdown in global markets because of trade war fears.
Due to this sudden change in the global interest rate scenario, equities will not be the preferred asset class for sometime unless the bond markets settle. RBI, too, has changed its stance from hawkish neutral to now dovish by keeping the repo rate unchanged in the current monetary policy meet. However, it announced a 1.5 per cent gradual reduction in SLR from January quarter, which is a welcome step to reduce the liquidity tightness in the banking system. This all boils down to only one fact, that rate hikes are unlikely in the near future.
Event of the Week
The Opec might have at last started its decline after decades of monopoly with Qatars sudden decision to quit the group. Electric vehicles revolution, which is coming sooner than expected, has shaken up the entire cartel. Their meet this week was expected to reduce the oil output by a massive 1 million barrels per day, and finally the group and its allies agreed to remove 1.2 million barrels a day from the market with Russia playing deal broker with Iranians and the Saudis. Yet, the falling power of Opec is the new normal for the world ahead and it would be good for an oil-consuming country like India.
On the weekly chart, Nifty has formed a bearish dark cloud candle, suggesting weakness in the medium term. Prices have broken the trend line on the daily chart setting a medium-term target in the 10,100-10,200 range. The fall will not be a straight one, but will have intermittent rallies arising out of optimism. However, eventually the market should find strong support around 10,100 and 10,200 levels. Traders are advised to stay away till the outcome of state elections on Tuesday, post which contrarian bets can be undertaken for short-term profits. Sell-on-rallies should be the strategy with appropriate stop losses.
Expectations for the Week
Markets will remain extremely volatile next week due to the election outcome. It is hard to predict which party will win or lose, but in any case, the market will make extremes moves in the short term, which will be irrational and, therefore, contrarian positions, if any, could be taken. November auto numbers came in this week with two-wheeler makers delivering robust growth of over 20 per cent and the passenger vehicles segment showing degrowth in numbers, which indicates that the purchasing power of the middle class is waning. This would impact future growth outlook of this industry as a whole.
Investors are advised to keep cash in hand and wait for panics. Ideally, 10,100 level on the Nifty should be good levels for investment, which is expected post the short-term volatility and preferably by the year end.
Nifty ended the week 1.68 per cent lower at 10,693.