Lack of Directional Bias Influences the Markets
The NSE Nifty has moved exactly along expected lines. After closing above the 17,500-17,530 zone, it has attained the mentioned target on the upside which was in the zone of 17,613 -17,665. It made a high of 17,639.50 on Monday and from there on the anticipated correction has manifested, which has pushed Nifty below the important psychological mark of 17,300. In fact, the Nifty has spent the last 17 trading sessions moving sideways between 16,782 on the downside and 17,639.50 on the upside, while a continuous supply has prevented it from taking out the aforesaid range decisively.
Despite multiple attempts, the highest closing for the Nifty over the last fortnight has been the 17,536.25 level posted on November 25, 2021. Needless to say, a close above the 17640- 17,665 zone is a must if any upside is to materialize, while a close below the 16,780 mark level could vitiate the technical picture for the time being. Sustainability at the higher levels remains elusive. The mid-caps and small-caps too have been reflecting similar sentiments, as both haven’t made much headway and continue to face supply at higher levels. The Nifty Mid-Cap index has lost 1.68 per cent on a WTD basis while Small-Cap index has shed 1.11 per cent.
Talking about the sectoral performance, barring Nifty IT index all the other indices are in the red on a WTD basis. Though Nifty IT has been one of the outperformers, it has made no real progress as it has been facing overhead supply around the 36,500 level, which also happens to be the high of the weekly candle formed as of week ended December 3. On the daily chart of Nifty IT index, we have seen the formation of an ascending triangle-like pattern which is not a picture- perfect textbook pattern though. Meanwhile, Nifty Pharma has been choppy and in a tight range. Nifty Realty and Nifty PSU Bank have come under hammering as both are down by more than 4 per cent.
Therefore, it’s clear from the sectoral performance that there is a lack of leadership and hence the headline index is swaying in a broad range. One of the biggest events of the week was the US Federal Reserve meet. Market participants worldwide were all ears to the US Federal Reserve meet and finally it answered all the questions related to the taper trajectory. The US Federal Reserve adopted a more hawkish tone; it announced that it would wind down its asset purchase at a faster pace amid a continued rise in inflation. The Federal Reserve also dropped the word “transitory” to describe inflation and it left key short- term interest rate unchanged.
Furthermore, the central bank signalled that its members may see three hikes in 2022. So, what does this mean for the Indian markets? This is not something out of the blue. As the US Federal Reserve had earlier indicated the possibility of an accelerated taper of bond purchases in December, there was expectation of at least two to three interest rate hikes in 2022 amid inflation in the US which is at a near four decades high. So, in this expectation, it led to outflow of dollars from emerging market economies, including India. FIIs have pulled out funds worth close to Rs 88,600 crore from equity market since October.
So, virtually the Federal Reserve taper might have little impact on the markets but hike in interest rates could impact the investors on the psychological level. There could be bouts of volatility witnessed till the first rate hike happens. Going forward, it is the rupee which will need to be closely monitored as for the first time since June 2020 it has breached the 76 mark to the dollar. If we dig deeper into what the price action is indication, it is telling a story which one should not ignore. The formation of lower highs and lower lows till Wednesday indicates that a sell-on rally stance has been adopted by market participants as every time the bulls have picked themselves up to move higher, they have been marred down by the selling pressure. In the current scenario, market participants are hesitant to take aggressive positions as there is clear evidence of discomfort at higher levels. Higher leveraged positions are not advisable now and the lack of directional bias could remain until there is a decisive breakout on either side.
