11,900 Level Holds The Key For Nifty
After struggling for almost three weeks to find a decisive direction, the bulls at Indian stock markets not only found their path but also picked up a brisk pace in the last week of November. Strong buying interest from FPIs supported the benchmark indices hit their peaks. December, however, has not brought in much prosperity for the markets. The last month of this eventful year, that is 2019, began with the doldrums. The GDP growth rate of India for the July-September quarter declined to 4.5 per cent from 5 per cent, recorded in the April-June quarter. The announcement was a grim one, as the figures were bleak; although no one was surprised by it at all. Trends were already indicating a deceleration in India’s growth rate. At present, the country stands at the lowest growth rate in the last 26 quarters.
The government has been battling, seeking to revive the animal spirit of the economy, making spending its primary tool at the moment. However, spending also has a limit. As we can see in these figures, the fiscal deficit surpassed the annual target in the first seven months of the current financial year. Moreover, the core sector output for October contracted to 5.8 per cent. Auto sales failed to cheer up after showing signs of some growth in October due to the festive season offers and, eventually, trickled in. Passenger vehicle sales dropped in November, as was the trend in the earlier months of FY20.
Amidst all this, a silver lining came in the form of GST collection. In November, the GST collection crossed Rs. 1 lakh crores mark. However, market participants did not read much into this uptick in the collection, as they believe that the festive season was the primary reason behind this. Market participants were banking on RBI monetary policy to provide fresh impetus to the markets with a rate cut; however, in a surprising move, RBI kept rates unchanged and slashed its FY20 GDP forecast to 5 per cent from 6.1 per cent, it projected earlier.
Despite the high volatility in the markets, telecom stocks have seen good momentum and have been resilient in the last three weeks. We had suggested in one of our editorials that selected telecom stocks are likely to be rerated and we were right about it.
Meanwhile, IPOs are back in the game on D-Street. On IPO front, the first half of the CY19 looked deserted, as sentiments took a backseat due to the turbulence in the secondary market. However, in the second half of the current calendar year, one can see the momentum picking up, as recent IPOs, such as IRCTC and CSB, have helped market participants garner good returns. The IPO of Ujjivan Small Finance Bank, which closed on Wednesday, received a significantly strong response, making it the most successful IPO in 2019, in terms of subscription.
On the global front, the stock markets across the world cracked impulsively in the initial part of the week. The biggest thorns in the flesh, which actually caused this crack, were the comments from the US President, Donald Trump, over the US-China trade deal. The President indicated that the trade deal with China may not be reached until next year. This disappointing delay came right after the announcement that the US President is likely to reinstate tariffs on steel from Argentina and Brazil. Threats of increased tariffs on French goods, in retaliation for French tax aimed at US big tech, also impacted negatively. However, the US stock markets rebounded and closed in the green for the first time on Wednesday, as sentiments about the US-China trade talks improved. The pressure is building on Washington and Beijing to complete what is termed as the 'Phase-one Deal' before the new tariffs on Chinese goods kick in by December 15. If this deal is completed before December 15, it would be a Christmas gift for market participants and we might see the ‘Santa Claus Rally’ in the markets. However, the nonhappening of a trade deal before the year ends would only lead to strong volatility in the markets.
On the domestic front, the Nifty has managed to defend its previous week low of 11,920 and it has defended a 20-DMA on a closing basis. Thus, from a technical perspective, shortterm traders are advised to raise their stop losses for long positions to 11,900 levels. As far as investors are concerned, we would suggest them to stick to quality names.
