The week ahead: Rally in offing as global cues, low inflation, stronger rupee to cheer bulls

The week ahead should see the markets break the narrow range of 5950-6150 on the Nifty and move higher. The vote-on account of the Union Budget should act as a formality and could actually see Finance Minister P Chidambaram better his targets on reduced fiscal deficit.

Strong global cues with the Dow Jones Industrial Average having its best week of the year gaining 2.3 per cent, wholesale price index-based inflation, or WPI inflation, coming at an 8-month low and the rupee ending at its strongest level in the last 2 months may translate into the perfect recipe for a rally.

With the earnings season mostly over and inflation coming sharply lower, a section of the market started to build expectation of chances of a rate cut by the central bank. This saw a sharp short covering rally in the Nifty in the last hour of trade which was led by rate sensitives like autos and banks.

The Nifty ended another lack-lustre week down 0.25 per cent, while the high beta 'Bank Nifty' ended down 0.58 per cent. The star of the week was the CNX Auto which ended the week with gains of 2.1 per cent, on the back of strong results from Tata Motors and Mahindra & Mahindra.

Technically, the Nifty has been in a very narrow range of 5950-6150 for the last 3 weeks. The Nifty now finds resistance at 6,150 and finds support at 5,980, which is the 200dma (day moving average). The Bank Nifty also has been range-bound between 10,000 and 10,500. It now finds resistance at 10,834, which is its 100dma, while support comes at 10,000.

After a swoon beginning in late January, stocks moved higher this week with the S&P 500 just 0.5 per cent shy of its January 15 record high. Asian markets also joined the rally with Japan's Nikkei and Hong Kong's Hang Seng seeing smart gains.

Results were a mixed bag with Tata Motors leading from the front and State Bank of India disappointing majorly. Foreign investors will await a sombre address by the Finance Minister on Monday as with economic macros slowly turning positive, most data points are already priced in.

Last week, the top 3 gainers on the Nifty were: Tata Motors, up 7.9 per cent, HCL Tech, up 6.9 per cent, and DLF, up 5.1 per cent. And the top 3 losers were: Cipla, down 10.5 per cent, Hindalco, down 6.1 per cent, and Ambuja Cement, down 5.9 per cent.

With foreign investors turning buyers in the last 3 days expect positive flows to be the driver behind any rally as news flow and data points for the remainder of February remain very benign.

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.