The week ahead: Valuations attractive, but rupee playing spoilsport

In the week ahead, the market is expected to react to the rupee movement as last week the local currency ended below under 57 for the first time in over 11 months. With stock valuations at attractive levels and the markets oversold in the very-short term, a strong rebound in the Nifty is likely, resulting in the index touching the 6,100 mark.

Last week, the Nifty was seen reacting to nervous foreign investors, who watched global bond yields, and the rupee weakness, which impacted sentiment. The index ended the week down 1.75 per cent, while the 30-scrip Sensex was down 1.67 per cent. The high beta 'Bank Nifty' was down 1.92 per cent, while the Nifty junior was down by a marginal 0.3 per cent. With the differential between bond yields in the US and India now narrowing, the real selling has emerged in the bond market with a huge foreign investor selling which has actually made the rupee weaker. The leveraged foreign investors may continue to withdraw money from the debt market as Indian bond yields may continue to fall while global bond yields could continue to rise.

As a corollary to the above, we had equity markets seeing weak sentiment and all eyes were on the crucial non-farming payroll figure of the US which was released after the markets back home closed on Friday. The US jobs figure, in line with market estimates, saw the Dow Jones industrial average index and most European indices actually rallying sharply as opinion on early withdrawal was again put on the back burner.

With valuations on the broader market looking very attractive, the rupee stabilising around these levels could mark the short-term bottom for the markets. However, with oil and gold prices now at low levels for an extended period, a substantial improvement in India's current account deficit can be expected. This could take away the pressure on the rupee as along with the above we also have an early onset of monsoon, a lowering inflation and a constructive government disinvestment calendar.

Technically, the Nifty now finds support at 5,830 and resistance at 6,040, while the Bank Nifty finds support at 12,000 and resistance at 12,500. The rupee finds support at 56.30 and resistance at 57.3.

Tracking A-group stocks, top three gainers of the week were- CRISIL, up 25.15 per cent, GSK Pharma, up 16.02 per cent, and Videocon Industries, up 6.71 per cent. Top three losers of the week were- Jaypee Infratech, down 21.40 per cent, Suzlon Energy, down 18.11 per cent, and Jet Airways, down 11.14 per cent.

Another noticeable pointer is an improvement in breadth, indicating that the selling may continue in large-cap index stocks owned by the foreign investors, while the broader market has stopped falling. This in itself should instil confidence in the retail investor to return to equity markets as valuations are extremely compelling and the weakness in gold and bond yields may continue.

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.