The US Federal Reserve while holding rates steady in the last policy review threw ample hints of cutting borrowing costs in the new year and beyond, triggering a global rally that spilled over to the Indian market as well, with benchmarks hitting new highs on December 14 morning.
Following the Fed's dovish commentary, the US market closed with significant gains on December 13. Indian markets also opened higher, with all sectoral indices trading in the green. The Sensex and the Nifty surged around 1.4 percent, while the Nifty IT index soared 2.5 percent.
On MCX, gold futures with a February 5 expiry traded 1,000 points, or 2 percent, higher at the open.
Following the Fed policy outcome annoucement, the dollar index, which measure the American currency against a basked of othet currencies, corrected to 102.90, and US 10-year treasury bond yields weakened to 4 percent.
This is positive from the perspective of liquidity flow towards risk-on asset classes such as global and Indian equity markets. Overall, global factors are aligning in favour of Indian equity markets.
A ‘dovish’ pause from the US Fed shows drag on economic activity
“The FOMC outcome was a 'dovish' pause, with Fed dot plots suggesting a 75 bps cut in CY 2024," said Deepak Agrawal, CIO-Debt at Kotak Mutual Fund. “The Fed's commentary indicates a recent slowdown in economic activity, moderation in job gains, and easing of inflation over the course of CY 2023. The FOMC statement also indicates that tighter financial conditions will continue to weigh on economic activity.”
While the Fed suggested that the FOMC would consider the cumulative tightening of monetary policy and the transmission lag on the economy, Agrawal said that the American central bank was unlikely to hike rates and would instead cut them the next time.
“The FOMC will consider the lags with which monetary policy affects economic activity and inflation in determining the extent of any additional policy firming," he said.
FIIs turn net long in F&O positions
In the F&O space, FIIs’ net shorts in index futures finally turned into net longs. Their net long positions are the highest since September, with 36,000 net long contracts, compared with 47,000 net short contracts in the previous week.
Stock futures have seen significant changes and net longs increased to 1,49,000 contracts. Given the aggressive long position, ICICI Securities said the current momentum in the Nifty is likely to continue.
Nifty levels to watch: Support, resistance
Sudeep Shah, Head of Technical and Derivative Research at SBI Securities, said, "Post the Fed Policy outcome, the 20,750 levels positionally acts as an important support area. We feel this will remain as a critical support going forward."
For the day, important support would be 20,980-21,000. As long as this zone holds, the index could move towards 21,200-21,280. On the downside, below 20,980, the index can retest support at 20,850-20,800 zones, Shah said.
"This global positive cue, combined with robust FII purchasing in the Indian market, will drive the Nifty to new highs and we urge traders and investors to maintain their long positions with a trailing stop loss of 20,850," Deven Mehata, a research analyst at Choice Broking, said.
The Nifty can find support at 20,900 after a gap-up opening, followed by 20,850 and 20,800. On the higher side, 21,020 could be the immediate resistance, followed by 21,100 and 21,150, he said.
Bank Nifty levels to watch
According to ICICI Securities, "The Bank Nifty has significantly outperformed Nifty last week and gained almost 5.5 percent as both private sector and PSU heavyweights witnessed fresh buying momentum. After the large breakout, continuation of upmove is likely with immediate support lying around 46,500-46,800 levels."
The options concentration in Bank Nifty is quite tilted towards Put writing, where 47,000 and 46,000 Put strikes hold the major open interest. Bank Nifty future open interest fell steadily last week along with the upmove, suggesting short covering. "Hence, positive bias should continue until we do not see any aggressive call writing," the brokerage said.
Banking sector heavyweights like HDFC Bank and SBI have recovered sharply after testing their Put bases. Axis Bank and Kotak Mahindra Bank saw fresh accumulation in the future as well as in the delivery segment. With trailing support near 46,500-46,800, ICICI Securities expects Bank Nifty to continue its outperformance over the Nifty in the coming sessions and head towards 48,000.
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