Market outlook: Nifty made ‘Hammer’ pattern, shows positive signals; rupee, trade war in focus

After a pause in the earlier week, Nifty corrected in the last short week ahead of weakness in the rupee which touched a historical new low of 72.92 and finally settled at 71.85 for the week. The broader Nifty extended its losses for the second week, ended down by 0.64% to close at 11519.

The mid and small cap indices also witnessed selling and lost 0.97% and 1.75%, respectively.

Sector-wise, Bank Nifty underperformed again and lost 1.16%, led by selling in both the public and private sector banks on concern sover rising bond yield, which rose to 8.12%. The metal sector ended with a minor gain of 0.38%; rest all the sectors ended in red, with Auto losing 1.90% and FMCG 1.17%. The foreign institutional investors (FII) sold equities worth Rs 2,120 crore while the domestic institutional investors (DII) bought shares of Rs 1,116 crore in the last short week.

In the previous week highlights, the rupee fell 11.1% so far in this year and India’s forex reserve slipped below $400 billion because of the Reserve Bank of India’s (RBI) effort to curb the current fall in the rupee.

The 50-share index corrected to 11251 on last Wednesday. August CPI inflation stood at 3.7% on lower food inflation, WPI also moderated to 4.53%. The finance minister also announced a five-point programme to stem the rupee fall and current account deficit (CAD), which include easing rules for raising fund overseas, FPI limit in debt investments, removal of the restriction on issuing masala bonds. The government would also curb non-essential imports and take steps to boost exports to shore up the rupee and control the current account deficit.

No major global or domestic events in this week, markets are closed on this Thursday. Last week, markets swung between 11251 and 11571 levels, the rupee plunge ,along with rising G-sec yield, led to a sharp fall in the indices across the sectors. Global trade tensions also weigh the sentiment in terms of volatility. Nifty managed to bounce back last Friday on positive announcements by the government to review the current economic situation.

Technically, on weekly charts, Nifty made a ‘Hammer’ pattern which shows positive signals. Markets will take cues from the outcome of the review meeting with expectations of pause in rupee fall and ongoing trade war tensions.

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Nifty has resistance at 11580-11630-11700 levels while supports are placed at 11480-11410-11333 levels. The probable trading range for this week could be between 11400 and 11700 with focus on IT, pharma and oil marketing companies.

By: Yogesh vinod Mehta

(The writer is VP-retail research, Motilal Oswal Financial Services)