The week ahead: Markets to seek higher levels as Raghuram Rajan triggers another rally
The week ahead should see the markets seek new highs as strong foreign flows and improved sentiment drive stocks higher. The Raghuram Rajan effect again played out as the RBI Governor did the unthinkable and left lending rates unchanged on expectation that food inflation would moderate, and instead focused on reviving growth.
The week gone by saw the Federal Reserve indicate a reduction in bond buying from $85 billion a month to $75 billion from as early as January 2014, which actually saw the US indices rally and end the week at new highs. The 10-year US bond yields did not move up as anticipated and stayed below the crucial 3 per cent level at 2.89 per cent, as the US central bank indicted that interest rates would continue to remain low for an extended period of time.
The Nifty rallied 1.71 per cent as event risk finished for the year with both the RBI and Fed meetings over.
Technically, the Nifty faces resistance at 6,357, its previous high, and finds support at 6,200. The high beta 'Bank Nifty' ended the week down 0.65 per cent. It now faces resistance at 11,670 and finds support at 11,200. The standing out index was the CNX IT which ended the week with gains of 5.92 per cent on the back of strong buying in tech stocks which would stand to benefit from the strong US growth coupled with the weak rupee syndrome.
As written earlier with news flow now abating for the rest of the year the markets would tend to rally going into the new year as foreign flows, unchanged interest rates and expectation of better corporate results would keep indices elevated. With expiry of the derivatives contract this Thursday, expect higher volatility to be the order of the week.
The rupee continued to be range-bound between 61.5-62.2, while bond yields rallied to 8.78 per cent as RBI left the repo rate unchanged.
The top 3 NSE gainers were: DLF, up 8 per cent, Bhel, up 7.5 per cent, and Ranbaxy, up 7.4 per cent. And the top 3 losers were: HDFC Bank, down 3.7 per cent, Jindal Steel, down 3.6 per cent, and Kotak Bank, down 3.3 per cent.
Foreign investors continue to repose faith in Indian stocks and their buying has been the main reason for the index to be at new highs. This was also corroborated this week with global pharma major GSK Pharma announcing a buyback of its stock at 25 per cent premium to the current price, which means an investment of $1 billion.
This is the second MNC, after Hindunilever, to put its money where its mouth is, and express confidence in Indian investments. The above and the Reserve Bank focus on not raising rates should be the important milestones going into the new year and retail investors should focus on realigning their portfolios with reduction in bonds/debt, and increase allocation to equities which could outperform in 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.
