Crude, global equities most important triggers

This week the markets got away with minimal damage; the start was bad, after which began the slow process of recovery and by the end of it, the Nifty and Sensex closed down about a percent and a half to two percent. It is a cut, but it is a lot better than many other Asian markets. Rate sensitives did not have such a good weekly session as was expected but a couple of individual stocks from pharmaceuticals like Ranbaxy, many capital goods stories like Bharat Heavy Electricals Ltd (BHEL), all of that stood out, energy did not do too badly.

How are markets set up for next week?

Markets have digested quite a bit of bad news this week and have not collapsed completely. They went down twice to those levels of sub-4,400 on the Nifty and managed to bounce back from there. Once those levels were there was more bad news. We had a repo rate hike, we had a higher than expected inflation number, we had a bad week for global markets - most global markets have fallen 8%-10% this week - but we have done much better in falling just 2%.

So while the environment remains quite sticky, the reluctance to fall lower from these levels is probably indicating that the market has exhausted its downward momentum and is looking for reasons to climb up a little higher and give you a little one of those relief rallies. So unless there are terrible headwinds, which come our way starting Monday, the market will attempt that move up once again keeping that 4,400 as a base and maybe trying to attempt upto more than 4,700 on the Nifty. It is still a relief rally, no more than that, but that much is technically warranted given the signs that we saw this week.

Market triggers

If for some reason next week, in the first couple of days crude goes to USD 142 per barrel to 143 per barrel once again, you can write-off any kind of relief rally because then the market will come under intense pressure again from the key thing that is worrying it. So assuming that crude will not rally significantly, maybe it will cool down a bit to about USD 130 per barrel. That would be helpful to the rally that one is speaking about.

Global markets are very important because you have had a bad week for global markets already. If early part of next week you have more sell offs in other global equities, then it could put more pressure on our markets as well. FII flows continue to be fairly weak. If we do get a little bit of short covering next week from the FIIs that will help our cause in moving upto close to 4,700. So these broadly are the triggers, but crude is the most important one followed by global equities, if we get some support or even remain flattish, the market will try to inch up rather than inch down just for the near-term.