The week ahead: Markets to herald 2014 on an optimistic note

The week ahead could see low volume range bound trade as holiday and festive spirit keep markets in check. The sentiment going into 2014 however has changed remarkably from pessimism to cautious optimism.

With most news and event risk over expect the herald of 2014 to be more somber and globally the expectation of better growth being the theme. The outperformance of developed markets, return of the euro and first negative return year for gold after 13 years were clearly the highlights of this year.

Technically, the Nifty closed higher by 0.7 per cent for the week and faces resistance at 6,357 while support comes at 6225. The high beta 'Bank Nifty' gained 1.49 per cent and faces resistance at 11,756 and finds support at 11,222. The positive for this week was clearly the outperformance of the broader market with the nifty midcap 50 gaining 2.68 per cent and the high beta CNX Reality ending the week with gains of 3.54 per cent.

Despite a major breakout at the start of the month, Nifty is unable to build on the gains. The current run up is lacking participation from the heavyweight stocks. Index is struggling to close above the previous breakout levels of 6,360 for three consecutive weeks now. In order to confirm trend reversal, Nifty needs to surpass and sustain above the congestion zone 6,300-6,350 where steady supply is visible.

Globally the US markets continued to lead from the front with the Dow Jones closing at record highs. However on Friday we had the US 10 year bond yields spike and close at 3 per cent, which is a 2-year high and could be a cause of concern for equity and bond markets, and currencies with emerging markets even more susceptible.

Gold offered negative returns in 2013, the first such in 13 years, on a slowing in net buying by central banks, followed by weak investment demand. A stronger dollar due to uncertainty in global economic growth also weighed on the metal. With the tapering in the US central bank's quantitative easing (QE) programme set to reduce investible surplus in consumers' hands, gold is set to remain subdued in 2014, too.

The above and better handling of the rupee and current account deficit by Reserve Bank of India (RBI) Governor Raghuram Rajan along with a change of guard at the centre would be the clear themes for the Indian bourses. The expectation of bottoming out of weak economic growth coupled with lower inflation and reduction in cost of funds would be the key for corporate India going into 2014.

Markets would now look forward to results season & with foreign flows being the key driver, expect stock and sector specific returns more prominent then the index.

The top 3 gainers on the Nifty were: PNB, up 6.8 per cent, DLF, up 5.2 per cent, and Jindal Steel, up 4.5 per cent. And the top 3 losers were: Hero Moto, down 2 per cent, Maruti, down 1.9 per cent, and Reliance Industries, down 1.8 per cent.

With gold performing poorly and bond yields having peaked equities could be the sweet spot for 2014. The only caveat being the volatility factor which would see sharp swings on the back of reduction in US bond buying and election outcome slated around the middle of 2014.

Disclaimer: 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.