The week ahead: Nifty holds 200 DMA as stronger rupee, improving macro data revive sentiment

The week ahead should see the Nifty trend higher as strong Dow Jones rebound and slowly improving economic macro data revive the sentiment. The next week will have a lot of crucial domestic data, with IIP (Index of Industrial Production) for December on Wednesday, CPI (Consumer Price Index) for January on Wednesday and WPI (Wholesale Price Index) for January on Friday.

The week started with weak global cues as currency woes in most emerging market countries continued to see Central Bank intervention and pressure on bond yields. With Collateral damage on all asset classes like currencies, bonds and equities the Indian rupee stood out as an outperformer.

The rupee rose to one-week high on Friday to post its first weekly gain in three, helped by favourable flows and rising confidence over the country's defence against any emerging market outflows.

This saw the Nifty respect its 200dma (day moving average) at 5965 and after testing the same thrice it bounced back to end the week down marginally by 0.43 per cent. The high beta "bank nifty" ended the week with gains of 0.25 per cent. This on the back of improvement in bond yields as Government of India postponed the scheduled bond auction, and also better than expected response of over Rs 52000 crore on the spectrum auction by the government.

Foreign investors continued to sell stock as global collateral damage has seen redemption on most ETF's (exchange traded fund). However, we had strong domestic mutual fund inflows countering the selling, as most mutual funds have garnered inflows in the last 2 months and were awaiting a correction to enter the market.

The mutual fund inflows are mostly in small and midcap funds where valuations were very attractive and so we the CNX Midcap index actually ended the week with gains of 0.85 per cent. The other highlight was the sell-off in IT stocks which arguably had their worst week in recent times, down 3.11 per cent as foreign investors booked profit on the back of a stronger rupee. The outperformer for the week was the CNX Auto and CNX Metals, which ended the week with gains of 1.66 per cent.

Globally US stocks rose, with the Standard & Poor's 500 Index capping its best two-day rally since October, amid optimism economic growth is robust enough to weather stimulus cuts even as data showed weaker-than-forecast hiring. Oil and Gold continued to see range bound action, while the 10 year US treasury paper ended the week at 2.68 per cent, the lowest since the last 2 months.

With results season almost over markets will watch out for electoral shifts and global cues as also domestic data on inflation which should continue to trend lower.

Tracking the top 3 gainers on the Nifty were Tata Steel up 10.94 per cent, Coal India up 9.53 per cent and PNB up 7.36 per cent, while the top 3 losers were Bhel down 10.08 per cent, HDFC down 5.51 per cent and Infosys down 3.72 per cent.

The real action has shifted to the small and mid cap segment as mutual fund inflows have revived sentiment for the local investors, and also with global cues turning volatile foreign investors would continue to see redemption pressure on Nifty related heavyweights which could cap gains on the Nifty.

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