Weak currency causes concern, ups uncertainty
Sports Minister Vijay Goel wields the broom against ‘black money’ during a march by Lok Abhiyan volunteers in support of demonetisation, in the capital yesterday. Pic/PTI
The markets recovered on last Thursday and Friday due to short covering ahead of the November F&O expiry, and, consistent support from DIIs. The Indian Rupee showed extreme volatility because of the strong dollar and concerns of FII selling in the equity markets ahead of the US Fed meeting, slated for December 14.
Investors believe that the US Fed may increase the interest rate. Last week, IT and Pharma large cap stocks recovered due to selective buying because of the weak rupee. The weak rupee is beneficial for exporters.
India VIX is still on the rising channel. It is at 17.6 indicating uncertain market conditions may prevail. The lower roll over costs during the November expiry also indicates uncertain market conditions will prevail in the next series. Nifty futures rollover figures were too low. Especially, compared with the previous three months average rollover, gives us further indication of the uncertain market situation in the December series. As the market conditions are weak, it is prudent to hedge open positions with appropriate futures and option segment.
Nifty has support at 7910, and it is likely to move up on Monday and Tuesday even due to oversold situation. Nifty has resistance at 8147 and 8290. If Nifty closes above 8300 for more than two days consecutively, then we can expect a continuation of the uptrend. In that case, Nifty may move further towards 8500. On the other hand, if Nifty moves down below 7910 with volumes then it could test 7800 or even lower levels. It is prudent not to carry over large open positions ahead of the Fed meeting in US.
IT stocks are expected to move up further. The IT index has resistance at 10213 and 10370 in the short term and has support at 9729. Please do not expect sharp upswing in IT stocks because there can be unexpected bouts of sell-off ahead of BREXIT. Pharma stocks are also expected to support the market in the near term. It is prudent to buy large cap pharma stocks for short term perspective.
There is a lot of macro data from the US expected this week. This is Markit Composite PMI, Service PMI, Non- farm payroll and unemployment rate. Business confidence, consumer confidence, retail sales, GDP Growth rate and inflation data is expected from the Euro zone. Nikkei Manufacturing PMI, Foreign Reserve, Service PMI, GDP Growth rate and infrastructure output data is due from India.
Gold is weak due to the strong dollar. It has lost its psychological support at $1200, and it is likely move down further towards $1159 in the short term. The good news is that gold has entered the oversold territory according to the technical charts, which indicates possible bounce back from the current level towards $1188 and $1205. The long term view of gold is still positive.
Alex K Mathews is the founder of www.thedailybrunch.com