The week ahead: New highs to trigger fresh buying as markets celebrate early Christmas

The week ahead should see markets scale new highs on the Nifty on the back of strong global cues and a 3-1 verdict for the BJP in the state election results.

The new high syndrome will see the disconnect between reality and markets continue for some more time as new political reality lifts sentiment. The other major trigger is the continued foreign buying which again surged last week as better macroeconomic data combined with rupee closing the week at a five-week high.

The key indices extended their winning streak for the second consecutive week after the current account deficit narrowed sharply to $5.2 billion, or 1.2 per cent of GDP, in the second quarter of fiscal year 2013-14 from $$21 billion, or 5 per cent of GDP, in the corresponding period a year ago. Moreover, India's manufacturing PMI read above 50 for the first time since July the highest in seven months.

Globally, the US jobs data was the other event which had led to profit booking across most major global markets. The market actually rallied sharply on Friday even though the US 10-year bond yield surged to 2.85 per cent showing the difference between yields on two-and 10-year Treasuries widened to the most since 2011 as employment gains reinforced expectations the Federal Reserve is close to slowing bond purchases used to stimulate growth.

The Nifty ended the week with gains of 1.37 per cent, while the high beta 'Bank Nifty" gained 5.08 per cent. Technically, the Nifty now faces resistance at 6,357 - its previous high - and finds support at 6,160. The Bank Nifty has shown huge traction and outperformance and now faces resistance at 12,500 while it finds support at 11,200.

With all major event risks over for this calendar year the BJP victory and strong global cues will see the Nifty open at new highs and sustaining there would be the key going ahead. The other positive would be the sharp improvement in the breadth of the market with defensives actually underperforming and cyclical high beta sector/stocks outperforming.

The top 3 gainers on the NSE were: Tata Power, up 11.2 per cent, Axis bank, up 10.7 per cent, and Jindal Steel, up 9.8 per cent. The top 3 losers were: Hindunilever, down 5.9 per cent, ITC, down 2.9 per cent, and Dr Reddy's, down 2.5 per cent.

Last week the Indian bourses and the rupee were the best performing asset classes globally. That could continue going into 2014 as slowly improving economic conditions coupled with positive political cues, foreign investors would continue to pump in money and, for a change, celebrate an early Christmas in India.

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.