Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in has advised traders to book profits in long positions if the index were to close below 10,720 levels.
Bulls managed to have an upper hand in the week ended February 22 despite FII outflow, feud between India and Pakistan, and uncertainty over the upcoming Lok Sabha elections.
Rising crude oil prices and around Rs 2.5 lakh crore worth of shares pledged by promoters are also causes of concern. The 30-share BSE Sensex gained 0.2 percent and Nifty50 rose 0.6 percent during the week.
The market is expected to see a rangebound trade in the coming week, also due to lack of major domestic and global cues barring ongoing trade talks between the world's largest economies US and China, experts said, adding there could be more of a stock specific action.
"Inflow of domestic funds to market remains positive while tepid reaction from FIIs and lack of major triggers are impacting investors' sentiment," Vinod Nair, Head of Research, Geojit Financial Services told Moneycontrol.
Teena Virmani, Vice President – Research at Kotak Securities said the house sees many positives in terms of improving macros such as lower crude prices, fairly valued currency, lower inflation as well as possibility of another 25 bps rate cut by RBI going forward, which would get reflected in earnings of the coming quarters.
To face the on-going volatility which may remain till middle of CY19 i.e. till general elections, it is ideal to have higher allocation into high earnings growth large caps and mid-caps with strong management pedigree and reasonable valuations, she advised.
Globally, apart from US-China trade talks factor, she said though FOMC has reaffirmed its dovish outlook on interest rates, it is also important to see how balance sheet normalisation is going to be done and at what level it is going to end. Uncertainty on Brexit is also weighing on the markets," she added.
Here are top 10 key factors which will keep traders busy this week:
One of the reasons for expected volatility in the coming week could be expiry of February futures and options contracts on February 28 and roll over of positions to next month.
Current option band signifies a broader trading range between 10,650 to 10,929 levels on the Nifty, experts said.
Maximum Put open interest (OI) is at 10,700 followed by 10,400 strike while maximum Call OI is at 11,000 followed by 10,900 strike. Significant Put writing is at 10,700 followed by 10,800 strike while Call writing is at 10,800 followed by 10,950 strike.
"Nifty Future open interest continued to remain lower (as compared with the last series). Additionally, VWAP (volume weighted average price) for February series is at 10,830 levels with VWAP-2sigma level of 10,590. Hence for few weeks, 10,600 will remain key support," Amit Gupta of ICICI Securities said.On the higher side immediate hurdle is at 10,850 (last 3 Nifty expiries have happened in 10,800-10,850 zone). Only a close above this level could
catalyse Nifty's up move towards its highest option base of 11,000 call, he added.
As the index fell sharply, the volatility index moved above its hurdle of 16 percent. However, with Nifty currently witnessing short covering, the volatility has again started to cool off.
"Declining implied volatility is likely to attract Put writing which will provide further boost to the index," Gupta said.
US-China trade talks
Globally the key factor, which remained and would be in focus for some more time, would be trade deal between US and China, along with US-Europe.
In fact, after growth slowdown fears, focus has now shifted to the progress on US-China trade negotiations as both nations approach the March 1 deadline for reaching an agreement on trade, Teena Virmani said.
In the week gone by, hope for trade deal increased amid positive talks between US President Donald Trump and Chinese President Xi Jinping.
In addition, US is also trying hard to settle trade matters with European Union (EU). Recently, report suggested that the Trump administration has been threatening to impose tariff of up to 25 percent on import of auto and auto ancillaries from Europe.
On rising hope of trade deal between US and China also lifted demand for oil prices which touched more than three-month highs in the passing week, though new record US oil production limited gains.
Brent crude futures, the international benchmark for oil prices, increased by 1.3 percent from $66.25 a barrel on February 15, to $67.12 on February 22. It hit a highest intraday level of $67.73 since mid-November 2018, during the week.
After sharp fall from $86 a barrel in October 2018, crude prices rallied from around $50 a barrel to current levels which raised a bit of concern for India which imports around 85 percent of oil requirement.
The rising oil prices also increased volatility in rupee, which is currently trading around 71 per dollar and fell 2 percent, so far, this year.
For the week, it was mildly higher against USD, however it pared most of the gains amidst geo-political escalation between India and Pakistan as well as rise in crude oil prices.
"We expect rupee to remain in the range of 71.60–70.95 in near term. While any sharp gains in oil prices and further geo political escalation would weigh on rupee," Amit Gupta of ICICI Securities said.
December quarter earnings season is largely over, but there are some companies yet to announce their results, which are:
The Central Statistics Office (CSO) will release its GDP growth estimates for the quarter ended December 2018) on February 28.
According to the first advanced estimates released in January, India's real or inflation-adjusted GDP will grow at 7.2 percent in 2018-19, implying an average growth of 6.8 percent in the last two quarters (October-December 2018 and January-March 2019).
Infrastructure output data and government budget value data for January will also be announced on same date.
Nikkei Manufacturing PMI for February, Foreign Exchange Reserves data for week ended February 22, and bank loan & deposit growth for fortnight ended February 15 will be released on March 1, 2019.
The Nifty50 ended the week higher by 0.6 percent at 10,792 levels and formed 'Hammer' like pattern on the weekly charts as the market rallied from the lows of 10,585 in the last week.
A Hammer like pattern on weekly charts suggests more upside in the coming week, but a confirmation is still required before we can conclude that the bulls can now take control of D-Street.
"Market is trading below its three key simple moving averages 20 DMA, 50 DMA and 200 DMA which are placed between 10,825-10,860 levels, suggesting strong resistance zone on the higher side. Middle regression line of linear regression channel is placed around 10,850 levels, while a normal bounce back towards this strong confluence zone is awaited," Shabbir Kayyumi, Head - Technical & Derivative Research at Narnolia Financial Advisors told Moneycontrol.
Sustained trade above 200 DMA (10,860) will resume the upmove taking the index higher towards immediate resistance zone of 10,980-11,000 levels. Moreover, a close below the strong support (10,640) will push prices back towards 10,580 levels, he added.
Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in advised traders to book profits in long positions if the index were to close below 10,720 levels.
FII and DII Flow
Foreign institutional investors net bought around Rs 5,000 crore worth of shares during the week including Kotak Mahindra Bank deal while domestic institutional investors net purchased around Rs 4,600 crore, as per provisional data.
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