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The week ahead: Emerging market currency meltdown to keep markets volatile

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The week ahead should see markets succumb to further volatility as global cues will dominate headlines. With foreign investors turning sellers expect pressure on indices to remain for the next week.

The Nifty ended the week losing 2.85 per cent, while the high beta 'Bank Nifty' plunged 6.78 per cent for the week. With expectation of "status quo" on rates being maintained by the RBI Governor, a 25 bps increase in the repo rate took the market by surprise and saw widespread selling in interest rate sensitives like banks, real estate and auto. The CNX Reality was the worst performer for the week, down 7.78 per cent.

The real damage was caused by global cues as constant intervention by central banks in Argentina, Turkey, Ukraine and Poland saw currency sell offs across the board from Argentina to South Africa.

Concern about growth in China and other emerging markets triggered the selling in developing economies late last week, with focus on countries with internal political and economic issues, like Ukraine and Argentina. The Federal Reserve's decision this week to continue to withdraw its monetary stimulus - one of the reasons for the flow of cash into emerging markets in recent years - compounded the problems in emerging economies.

Technically, the Nifty slipped and closed at 6090 just below its 100dma (day moving average) at 6123.The nifty finds support at 5956, which is the 200dma and finds resistance at 6230. The Bank Nifty has closed below all its moving averages and finds support at 9882, while it faces resistance at 10850 which is the 100 dma.

The outperformance came from the Indian rupee which stood out as the best in the emerging market currency rout & lost just 0.5 per cent this week. There will be pressure on the currency as foreign flows turned negative and could be volatile going ahead. The rupee found strong resistance around 63.2 and support around 62.1. Any break above 63.2 could trigger weakness and have a negative co-relation with the stock and bond market.

The US markets ended the week down 1.14 per cent, with the S&P 500 index down three weeks running and having its longest slump since 2012. The real concern would now be how to balance growth with reduction of capital from most central banks and not hurt asset classes across the board from volatile swings as collateral damage could again hurt most economies dependent on the easy money.

With results season in full swing expect volatility to be key as most corporate results due would be from the worst performing sectors, where weakness could continue.

The top 3 gainers on the Nifty were: BPCL, up 4.43 per cent, HCL Tech, up 3.58 per cent, and Gail, up2.09 per cent. And the top 3 losers were: Ranbaxy, down 22 per cent, JP Associates, down 17.7 per cent, and DLF, down 13.68 per cent.

With global cues dominating centre stage what may be going unnoticed is the quiet improvement in the Indian economy with the current account deficit now below $ 50 billion, better cash management as the government postpones bond auction and renewed weakness in oil and gold which indirectly lowers our import outflow. Building a portfolio on some quality stocks would be the key going ahead as volatility globally causes prices to correct.

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.
 

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