The week ahead: Bullish fervour to continue as foreign flows drive indices higher

The week ahead should see the "bullish momentum" continue as massive foreign ETF (exchange traded fund) buying drives the indices higher into new unchartered territory.

The combination of foreign flows, rupee at 3 month lows, positive data with current account deficit coming at $ 4.2 billion (0.9 per cent of GDP) the lowest level in 8 years and the temporary resolution of the Ukraine crisis all saw the Nifty and Sensex soar to new highs.

Technically, the Nifty is now in unchartered territory and will find resistance close to 6640, while support comes at 6415 the previous high. The nifty ended the week with gains of 3.98 per cent. The high beta "bank nifty" was an outperformer and ended the week with gains of 10.4 per cent.

The bank nifty now finds support at 10947 which is the 100 DMA (day moving average) while it finds resistance at 12225 which was the 9th December high. The underperformance came from the CNX IT which ended the week down 2.74 per cent, as money exited defensives and export oriented sectors on the back of rupee hitting a 3 month high.

It was all about flows as foreign investors who are driving the rally, posting on Friday their biggest daily purchases since December 9, or a net Rs 2,577 crore ($420.73 million). That marked a 16th consecutive buying session for a net total of about $1.4 billion.

Three things are driving the indices higher:

1. Improved data with inflation easing, CAD lowering and rupee strengthening.

2. Foreign flows "buying strength" as in Indian equities and rupee at new highs and "selling weakness" as in selling continuing in Russia, Brazil & China, on weak data and Ukraine crisis spreading.

3. The announcement of election dates propelling the "Modi trade" as polls indicate an NDA win.

Tracking the Nifty the top 3 gainers were, Bank of Baroda up 18.96per cent, Dlf up 18.24 per cent and Hindalco up 18.22 per cent, while the top 3 losers were, Dr Reddy down 5.87 per cent, HCL Tech down 5.52 per cent and Wipro down 5.36 per cent.

With divided opinion on this pre-election rally sustaining, one thing is clear that the 4-5 year bull market in Gold and bonds is definitely over and equities could be the flavour of the month, year and possibly the next 4 years.

The week ahead could see the return of heightened volatility as negative news flow on Ukraine and Russian crisis could return as also the routine bout of profit taking re-emerging.

Sanjeev Bhasin is an independent market analyst. The opinions expressed here are the personal opinions of the author. NDTV is not responsible for the accuracy, completeness, suitability or validity of any information given here. All information is provided on an as-is basis. The information, facts or opinions appearing on the blog do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.