Index Outlook: Indices to remain range-bound

The market began the GST era on a positive note. Despite domestic auto companies reporting a set of mixed June sales numbers and announcing price cuts following the rollout of GST, auto stocks inched up last Monday in anticipation of improved sales in July. Ashok Leyland’s 11 per cent sales growth in June saw the stock rally and help push the auto index higher that session.

Apart from that, FMCG stocks such as ITC, Marico and Dabur too gained, post-GST, helping the bellwether indices — the Nifty and the Sensex — stage a recovery with a gap up open last week. The Nifty closing above 9,600 and the Sensex ending above 31,000 last Monday brought back the bullish momentum.

Despite negative global cues such as the US Fed’s June meeting minutes that fuelled uncertainty on rate hikes, and spurt in tensions in the Korean peninsula, the domestic indices remained resilient. The Nifty 50 index added 144 points or 1.5 per cent and the Sensex climbed 439 points or 1.4 per cent in the previous week. The optimism over first quarter earnings announcement, which is due to kick-off this week, and good progress in monsoon so far, kept the markets inching higher despite foreign portfolio investors (FPIs) selling shares worth ₹1,845.62 crore last week.

Late Friday, market regulator SEBI banned FPIs from issuing offshore derivative instruments or P-Notes for derivatives as underlying. SEBI stated that exception will be made for P-Note issuances on derivatives only where it is done for hedging purpose and underlying shares are held by FPIs. This development could trigger a weak opening in the market this week. Going forward, progress of the monsoon, macro economic data (May IIP, June CPI & WPI), foreign inflows and Junequarter results can determine market direction.

Taking support from the key support at 9,500 and the 50-day moving average, the Nifty resumed its upmove last week.

Short-term trend: The Nifty surpassed its immediate resistance at 9,600 and its 21-day moving average. However, it now faces a significant hurdle at 9,700 levels. The index has been on a sideways consolidation phase in the band between 9,500 and 9,700 since late May. Inability to surpass the upper boundary of 9,700 will keep the sideways range intact for the index, and it will continue to remain at the crossroads. A strong plunge below the vital support at 9,500 can pull the index down to 9,400 levels or even to the next short-term support level of 9,328.

As long as the index is range-bound between 9,500 and 9,700, short-term traders should tread with caution and desist from taking fresh long positions. Only a strong break above 9,700 will be a positive cue to go long on the index. In that scenario, the index can trend upwards to to 9,844, then to 9,939 and further to 10,000 in the short-to-medium term.

To alter the short-term uptrend, the index needs to decisively close below the significant support level of 9,328. Subsequent key supports are placed at 9,200 and 9,100 levels.

Medium-term trend: There is no threat to the medium-term uptrend now. The uptrend will remain in place, as long as the index trades above 9,100 levels. Continuation of the uptrend can pave the way for an upmove to 10,626 and 12,077 in the medium term with a pause at the psychological level of 10,000. Vital supports below 9,000 are at 8,800 and 8,600.

Last week, the Bank Nifty advanced 237 points or 1 per cent to test the key resistance level of 23,500. The indicators and oscillators in the daily chart are showing weakness. Traders with a short-term view should tread with caution as long as the index trades above the immediate support level of 23,000. Strong tumble below this base can pull the index down to 22,500 with a minor pause at 22,700. The upside appears to be capped as the index has key hurdles at 23,740 and then at 24,000. An emphatic break above 24,000 can take the index up to 24,500 and 25,000 in the medium to long term.

The Sensex added 439 points to close above the 31,000-mark last week. But it continues to move sideways in the range between 30,800 and 31,500. The index now faces a key resistance at 31,500. Conclusive break above this level is required to strengthen the uptrend and take the index upwards to 32,000 and 32,335 levels in the medium term. Failure to surpass 31,500 can help the index remain range-bound. Strong fall below the immediate supports at 31,000 and 30,800 can drag the index down to 30,600 and 30,500 levels. Further decline can pull the index lower to 30,300 and 30,000 levels. Key medium-term support for the Sensex is placed at the level of 29,250.

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