Reliance drags markets; RBI keeps rates unchanged!

Market Update at 11:00 AM: Indian markets took a U-turn after RBI policy announcement. Nifty and Sensex plunged by 0.34 per cent and 0.41 per cent, respectively. On the expected lines, RBI keeps the interest rates unchanged. RBI Governor Shaktikanta Das announced that the policy stance continues to be accommodative. Meanwhile, the GDP growth was reported to be at 9.5 per cent in FY22 while CPI inflation was seen at 5.7 per cent.   

Reliance Industries plunges more than 2 per cent as reports by Live Law says that the apex court of India ruled in favour of e-commerce giant Amazon in its dispute with Future Retail over the latter’s merger deal with Reliance Group. Supreme Court held that Emergency Award passed by Singapore arbitrator stalling Future Retail-Reliance deal is enforceable in Indian law.  

SGX Nifty is trading up by 10 points at 16,320 levels. The sentimental boost for the market would be the government's move to scrap retrospective tax law. This move will enhance India’s global image as a fair, predictable, and rule-based investment destination, providing certainty & protection of property rights to investors.    

The benchmark index - Nifty closed higher for the fourth successive day. It closed at 16,294.60 levels with gains of 35.80 points. Nifty opened gap-up and closed at almost the opening level. Today, the trend was led by the metal and the IT indices. Nifty index breadth along with the overall market breadth was found to be negative.         

Nifty recorded an impulsive move after 34 days of consolidation. With gains of over 400 points in just three days, it’s a surprise for many. Nifty is sustaining above the 161.8 per cent Fibonacci extension level of February-April fall. As Nifty is trading at a new lifetime high, it is trading above all the important moving averages. Now, even the shorter period averages are also trending up. The weekly RSI has also broken out of a sloping channel and moved above the prior swing. The daily RSI entered above the zone of 70. The daily +DMI is at a prior swing high. The weekly MACD line is also about to move above the signal line. However, there are some concerns even in this strong bullish market. The market breadth is extremely negative for the past three days. Even the benchmark index breadth is negative for the last two days. Meanwhile, sector rotation and stock-specific activities are keeping the market alive. The volume is also not reflecting this euphoric move.      

Nevertheless, the index has formed a perfect Doji candle. Steve Nison's Doji principle says that a Doji needs a close below it for a bearish reversal at a lifetime high. Four successive gap days are showing that the market has overextended and exhausted. Reserve Bank of India (RBI) will announce the monetary policy on Friday, which is likely to be a deciding factor for the markets. The banking, financial services & insurance (BFSI) sectors were already sharply retraced before the policy.     

We expect the monetary policy committee (MPC) of RBI to keep the rates unchanged and continue with an accommodative stance. However, commentary will be important to watch out for regarding GDP forecast and inflation projection.     

Nifty, which closed above the upper Bollinger bands, shows the overextended rally. It needs to retrace back into the bands in the next two to three days. After a five per cent rally, with an indecisive candle in place, it is time to be cautious!