Market to meander sideways

Indian equities put up a subdued show last week. The Sensex and the Nifty remained shackled in a narrow range and ended the week marginally lower.

Investors who felt let down by the RBI Governor not lowering policy rates in the monetary policy were consoled by his statement that he will consider cutting rates early next year and that this could even happen outside the monetary policy cycle. It implies that we could have sudden rate cut sprung on us, if inflation stays benign.

With the monetary policy now done with, the market has few triggers to take it higher from these levels, at least in the short term. We are also in the month of December, when the holiday mood pervades investors, who are too tired to even work up the energy to go on a selling spree.

Neither rallies nor declines have too much momentum in this month, as many large institutions go on a year-end break and others are more interested in preserving the profits made during the year.

This mood was reflected in last week’s trade, when the indices closed lower in four out of five sessions, but the decline wasn’t deep enough to cause any concern. Lack of momentum can make the front-line indices drift lower in the near term. But there will not be any cause for concern unless the Sensex closes below 27,500 and the Nifty below 8,200.

We have a data-heavy week coming up, with industrial production and consumer price inflation numbers set to be released next week.

The Winter Session of Parliament and the passage of important bills such as the Insurance Bill will also keep investors riveted.

Movement of crude prices and the progress of the North-East monsoon will be other data that will be watched. Crude is attempting to stabilise around the $64-support indicated in this column last week. There is a high probability of a base formation around this level.

Momentum continues to slacken in the daily chart. This is reflected in the sell signal generated in the momentum indicators in the daily chart, such as the daily moving average convergence divergence indicator. But the fact that this indicator is still featuring in the overbought zone implies that the short-term trend has not reversed lower yet.

Weekly oscillators, however, continue to be positive, signalling a very strong medium-term trend. Oscillators in the monthly chart are also showing strong upward traction.

Sensex (28,458.1)

The Sensex remained in a narrow 500-point range last week.

The week ahead: We stay with the view elaborated in our last column. This could be the final leg of the move from October 17 low. The targets for this move are 28,701, 29,047 and then 29,187.

The first target has been achieved and the index is currently struggling to move past 28,800. If it manages that, then the next two levels will come into play.

Sell signals in short-term oscillators are signalling a possible extension of the correction in the short term. Supports in that event are at 28,184 and 27,753. Short-term traders can continue to buy in declines as long as the first support holds.

Medium-term trend: There is no alteration in the medium-term trend too. We could be nearing the end of the wave that began from the August 2013 low. The targets for this move fall between 28,270 and 29,717.

Since the first target has already been achieved, caution is advisable. But a reversal is possible anytime from this point. Key medium-term support is at 27,500.

Nifty (8,538.3)

The Nifty too was stuck in a narrow 100-point range last week.

The week ahead: The deterioration in momentum continues to signal caution. But the wave pattern signals the possibility of yet another lurch upward. This can take the Nifty to 8,682 or 8,793. Traders can continue to buy in dips as long as the index trades above 8,420. If this level is breached, the next supports are at 8,300 and 8,200.

Medium-term trend: We continue to advise caution from a medium-term view. The trend-following indicators continue to be strong. But we are close to critical medium-term targets.

The market could move sideways in December between 8,300 and 8,700 in December in a rounding top distribution pattern before a sell-off in January. A sharp move beyond 8,800 is needed to signal that the Nifty is moving towards 9,026 and 9,541.

Global cues

Global indices put up a mixed show last week. While European and US markets continued to hit new highs, some markets with larger weights assigned to commodity stocks, such as Brazil and Russia, recorded steep declines.

Strong US jobs numbers — with unemployment at a six-year low of 5.8 per cent and the strongest addition to jobs since January 2012 in November — pleased US investors, lifting US benchmarks to yet another record high.

The Dow has now moved close to the 18,000-mark. If this rally continues, the index will be on course to hit the next target of 18,550. Supports for the index stay at 16,652 and 16,000.

With many large investors away on a year-end break, sharp moves are unlikely in December

Weekahead - Markets seen rangebound ahead of CPI, industrial output data

Indian debt/FX markets to wait for cues from CPI, industrial production data next week.

U.S. nonfarm payrolls data to provide cues for market's opening on Monday.

10-year bond seen in 7.88 to 7.98 pct range next week.

Rupee seen holding between 61.30 to 62.00 per dollar band.

Winter session of parliament and government's disinvestment programme for FY15 also to be in focus.

Nifty seen in 8,400-8,700 range.

Foreign investor activity in index futures also on watch after four consecutive sessions of selling.

China CPI data on Wednesday.

KEY FACTORS TO WATCH

July-Sept current acc balance, no fixed date for release.

Wed: India money supply data.

Fri: India bank credit data, deposit data at 1130 GMT.

India CPI/industrial production data at 1200 GMT.

Nifty will hit 1,25,000 by 2030: Jhunjhunwala

Congratulating CNBC-TV18 on it 15th birth anniversary, Rakesh Jhunjhunwala, partner at asset management firm Rare Enterprises, says Nifty has grown 10 times in last 15 years and can easily grow 10-12 times in the coming decade.

Read More At moneycontrol.com

RBI opens the door for a rate cut early 2015: CRISIL

Reserve Bank of India (RBI) has held the repo rate steady at 8% as expected. CRISIL expects inflation to average at 6.7% in FY15 and the RBI to cut rates by April 2015.

In today’s rather dovish monetary policy statement, RBI indicated that a change in its monetary policy stance is premature at this juncture. However, if the fall in inflation is sustained, inflationary expectations remain contained and fiscal developments are encouraging then a change in monetary policy stance is likely early next year. The RBI kept its central estimate for growth at 5.5% while revising its inflation projection down to 6% by March-end FY15.

In the medium term, RBI expects inflation to hover around 6% assuming a normal south-west monsoon, lower crude oil prices and no change in administered prices barring electricity. RBI governor also mentioned that the RBI is in the process of finalizing the monetary policy framework, and the government seems comfortable with adopting a target of around 4% with a band of +/-2% beyond 2016. 

The liquidity in the banking sector has improved and currently the reverse repo rate of 7% is effectively the short-term effective rate to which other short-term market rates are linked. The yield on 10-year g-sec has also been easing in recent months – due to higher liquidity, falling inflation and lower pressure on government borrowings with declining oil prices. However, even as deposit rates and short term rates are starting to decline, lending rates will be slow in coming down.

India hikes excise duties on diesel, petrol

India on Tuesday raised excise duties on petrol by 2.25 rupees per litre and on diesel by 1 rupee per litre with immediate effect, the finance ministry said in a statement to parliament.

The increases, which follow similar hikes in mid-November, seek to take advantage of a slump in world oil prices to shore up government revenues without stoking inflation.

A source familiar with the matter said the latest measures were expected to raise an additional 40 billion rupees ($650 million) in the remainder of the fiscal year to the end of March 2015.

Time to watch your step

Bulls were on the rampage on Friday, lifting stocks to new life-time highs and helping the BSE market capitalisation to cross the ₹100 lakh crore mark.

The mood could however turn a little circumspect this week, ahead of the monetary policy. The September quarter GDP growth was also nothing to cheer about.

The fate of the ongoing rally hinges on the Reserve Bank of India’s next move. If the RBI obliges and cuts policy rates, the Sensex will get past 29,000. But if the central bank continues with its current stance of waiting for structural decline in inflation, there could be a sharp sell-off next week.

Indices moved sideways in the early part of last week as the bulls and bears battled it out in the expiry week. But market broke free of its shackles on Friday. It was the sharp decline in crude oil prices — after OPEC decided to squeeze shale gas producers in to a tight corner — that made stocks soar sharply towards the end of the week.

All eyes will now be on the price of crude. If we consider the chart of Nymex crude futures, the most significant long-term support is at $64. This occurs at 61.8 per cent (Fibonacci) retracement of the move from the 2009 low of $36 to the 2011 peak of $115. If oil breaks below $64, a decline to $36 is possible, technically. Since a fall to $36 is inconceivable at this juncture, the decline should find a base in the zone of $60 and $65.

Oscillators in the daily chart are moving sideways in the positive zone. Sell signals are also beginning to emerge in some oscillators, implying slowing momentum that can eventually lead to a fall.

Weekly oscillators however continue to be strong. The medium-term trend therefore continues to be up. It has been a breathless run for our market since this February with consecutive up closes in the monthly chart, interspersed with two doji candles.

Sensex (28,693.9)

The Sensex vacillated in a narrow range in the first four sessions before the strong surge on Friday that took the index 359 points higher.

The week ahead: As explained in the last column, a running correction was forming in the Sensex and the Nifty since November 3. The indices have broken out into the next leg of the uptrend now.

This appears to be the fifth wave from the October 17 low. The targets of this wave are 28,701, 29,047 and then 29,187. Since the index is close to the first target, some degree of caution is needed here. A break beyond 28,700 can take the index towards 29,047.

But there is a high probability of a wobble, as the index nears 29,000.

It is also equally possible that the mood turns cautious, ahead of the monetary policy and the index drops lower. Supports in that case are at 27,735 and 27,000. Traders can continue to buy on declines as long as the index trades above the first support.

Medium-term trend: The medium-term trend stays strong in the Sensex. But it could be nearing the end of a five-wave formation from the August 2013-low. The targets for this move fall between 28,270 and 29,717.

Since the first target has already been achieved, a reversal is possible anytime from this point. Key medium-term support is at 27,354. The recent peak was formed at this level. The 50-day moving average is placed here and it is also a short-term Fibonacci support.

Nifty (8,588.2)

The Nifty too rallied sharply on Friday, helping the index close 94 points higher.

The week ahead: The lack of momentum and negative divergence in daily oscillators shows that a decline is in the offing. The final wave from the October 17 low of 7,723 could be unfolding now. This wave has the targets of 8,598, 8, 706 and 8,750.

Since the index hovers around the first target, investors should tread cautiously. A strong start on Monday (quite unlikely, given the monetary policy overhang and GDP numbers) can take the Nifty above 8,700. Supports for the week are at 8,429, 8,320 and 8,300. Fresh long positions should be avoided only on a close below 8,300.

Medium-term trend: The medium-term trend for the Nifty stays strong. But the index is nearing critical long-term targets.

If we consider the move from August 2013 low at 5,118, the final stages of this move appear to be in motion. This wave has the targets of 8,585, 9,026 and 9,541. The first target of the longer-term wave has also been achieved. A reversal is therefore possible.

However, if the rally continues, the Nifty will be reaching out to the 9,000 mark soon.

Global cues

Global indices edged slightly higher last week. The Shanghai Composite Index posted the strongest gain among global indices, up 8 per cent. Investors seem to have flocked to Chinese stocks following the interest rate cut by the Chinese Central bank. There appears to be a lesson for Raghuram Rajan here.

The Dow was however a little subdued last week, recording a mild 18 points gain. Supports for the index are at 16,652 and 16,000. Our medium-term target for this index stays at 18,550, if the index holds above 17,350.

The daily chart signals caution. A status quo in the monetary policy can cause turbulence

Petrol price cut by 91 paise/litre, diesel by 84 paise.

State-run oil marketing companies have slashed petrol prices by 91 paise per litre from Monday and diesel prices by 84 paise. This is the seventh consecutive reduction in petrol prices in the last four months and the third cut in diesel prices since October 18 when the Cabinet deregulated the fuel.

But the decision drew criticism from the opposition parties and petrol pump dealers, who said the government was not passing on the entire benefit of falling global oil prices to the consumers.

International crude prices have dropped 40% since June to $70 a barrel on Friday, but the reduction in pump prices of petrol and diesel are not in that proportion, they said. Petrol prices have been reduced by a little over 11% and diesel by 8% since June.

Brent crude fell to a new four year low on Friday after the Organisation of Petroleum Exporting Countries (OPEC) decided not to cut output despite a slide in prices. 

India's average crude oil import price (Indian basket) plunged to a four-year low of $72.51 per barrel last week, according to an oil ministry statement issued on Friday. 

Executives at state-run oil firms, however, said that in a bear market, the global price of refined products falls after a lag. Retail prices of petrol and diesel are also affected because of the rupee-dollar exchange rates, they said. India imports about 80% crude oil it processes and pays in dollar.

Oil companies have so far reduced petrol prices by Rs 10.27 per litre since August 1 and diesel by Rs 6.46 per litre since October 18. They had last cut fuel prices on November 1.

"Since the last revision, international prices of both petrol and diesel have continued to be on a downtrend.

The rupee-dollar exchange rate has, however, appreciated since the last price change. The combined impact of both these factors warrant a decrease in retail selling prices of both petrol and diesel," an IOC spokesman said. 

Taking advantage of falling international oil prices since June, the government had on November 13 imposed additional excise duty ofRs 1.50 per litre on petrol and diesel to meet its revenue deficit target.

Although the government officially deregulated diesel in October, just as it did in case of petrol over four years ago, the oil ministry retains informal control on retail prices.

The government has informally nudged state-run firms to keep a small margin on fuel prices to prevent consumers from volatile global oil markets especially during the crucial elections in Jharkhand and Jammu & Kashmir, government and industry officials said.

"Despite a hike in central excise on petrol and diesel in mid-November, there was a scope to reduce fuel prices by 50 paise to Rs 1 per litre on November 15. But oil companies silently usurped the amount. Private retailers are silent partners of public sector oil firms in this because they have historically suffered from predatory pricing and this is the time to make up some of their past losses," said one dealer, requesting anonymity.

Source: ET