The Week Ahead: Markets eye volatility ahead of F&O expiry, RBI policy

The week gone by saw the markets trade in a narrow range with the Nifty gaining 0.17 per cent, while the Sensex rose 0.32 per cent. However, the real action was in the mid-cap space, where certain corporate governance/disclosures issued by a prominent realty stock tracked and over-owned by most Foreign Institutional Investors (FIIs) saw a large part of the realty, infra, high beta investor-favourite stocks losing 10-40 per cent in the space of three days. This caused huge volatility in a nicely trending market and saw the Nifty break down from 6,100 to 6,000 before recovering on Friday to close at 6075 level.

 

Technically, the Nifty now faces resistance at 6,100, while support comes at 5,980/6,000 levels. The high beta 'Bank Nifty' faces resistance at 12,850, while support comes at 12,540 levels.

 

The market will now look forward to more corporate earnings. They also await action by the RBI in its monetary policy review, with most market participants expecting a 25 bps or 0.25 per cent cut in repo rate.

 

The Standard & Poor's 500 index closed above 1,500 for the first time in more than five years on Friday as strong US earnings reports, including Procter & Gamble's, helped the benchmark extend its rally to eight days.

 

The winning streak is the longest in eight years and left the S&P 500 about 4.1 per cent away from its all-time closing high of 1,565.15, hit on October 9, 2007.

 

The rupee continued to see strength against the dollar and closed below 54 at 53.67, while oil and gold prices remained very range bound. Bond yields on the benchmark 10-year government securities ended the week at 7.8 per cent, close to a new 30-month low.

 

The weeks highlight was also better-than-expected results from key heavyweights like L&T, Maruti and ITC, while telecom stocks rose on the back of raise in tariffs by Bharti Airtel and Idea Cellular. This led to the recovery in the indices in the face of onslaught by midcap stocks.

 

Tracking the 'A' group stocks, the top three gainers of the week were - ONGC, up 12.39 per cent, Suzlon Energy, up 11.35 per cent, and Berger Paints, up 10.72 per cent. The top three losers of the week were - HDIL, down 31.31 per cent, Opto Circuits, down 18.48 per cent, and Exide Industries, down 14.7 per cent.

 

Foreign Fund inflows continue unabated and with the spate of reforms by the government, an indication of improvement in macros will be keenly watched in the RBI governor's speech on Tuesday.