Smells Of Storm In Consolidation Of Market
In our previous editorial, we expected the Nifty to soon trade in the range of 11,800-12,050. In sync with our analysis, the index has traded as anticipated. Factors, such as Moody's slashing India's credit rating to negative from stable, weak macro-economic data, several brokerage houses reducing India's GDP forecast, renewed uncertainty looming on the US-China trade deal, and the political unrest in Hong Kong, kept the upside move of the markets capped. Nonetheless, the continued buying by the FPIs, who have pumped in about Rs. 4,987 crores in the month of November to date, lent much-needed support to the markets.
The recent retail inflation data could be the next big challenge. Predominantly driven by higher food prices, which are likely to remain sticky, it has breached the RBI target of 4 per cent for the first time in 14 months. It also raises questions over the rate cuts and works as a negative catalyst since it shrinks the headroom for a rate cut in its monetary policy, due next month, by the RBI. Digging deeper, it is a double whammy for the Indian economy! Inflation shoots up and IIP contracts to 4.3 per cent for the second consecutive month in September. Amidst this backdrop, we are sure that many of the market participants would be in an anxious state and the nightmare of drastic fall would be looming again. However, we could see by and large over the last three months or so that the stock market is forward-looking and, hence, we believe that Mr. Market has discounted the worst-case scenario for Q2 GDP on the back of a series of downgrades from financial institutions during the week. As on the rate cuts, we believe that since the CPI has crossed the RBI's target of 4 per cent, the central bank will certainly start taking note of this uptick. Meanwhile supporting the weakening economy would be its top priority and it could continue to maintain its descending rate strategy with an accommodative stance.
In the meantime, the rupee falls past 72 against the dollar on Wednesday and registered the biggest single-day decline since September 16, taking it to over two-months low. That is despite foreign portfolio inflows into the bond and the stock markets are being positive in November so far. Market participants will keep a close watch on the rupee's trajectory against the US dollar as this could be one of the prominent factors that can induce and dictate the future courses of markets in the coming days.
On the global front, though the Dow and the S&P 500 closed at new highs, the NASDAQ was down due to the uncertainty, looming over the signing of the Sino- American trade deal. The constantly shifting situation has been playing itself out in the US market for some time now and this may continue to be the case in the weeks ahead.
All said and done, it is a hard time for the market participants to decide whether to be in the markets or not. The only advice for them is, "neither become greedy nor fearful in these market conditions." Just book early profits and exit stocks, which do not have a promising outlook, without waiting for further upside. In the near term, investors can go for stocks with better Q2 earnings reports and keep away from swimming against the tide for the time being. Selected midcaps and smallcaps may look attractive. For the Nifty, the make or break of levels would be 11,800 and a fresh wave of momentum would only be seen if the benchmark index crosses 11,980 levels on a closing basis. Till it happens, we would suggest market participants, especially traders, to play safe and become aggressive only after the markets find direction and momentum.
