Index Outlook: Nifty edges towards 8,000

The monsoon clouds now spread across the entire country have spread cheer among stock market investors too. The Sensex and the Nifty skipped merrily higher to scale fresh life-time highs last week.

The week ahead promises to have plenty of thunder and lightning too, as the July derivative contracts roll into expiry. Derivative volumes on the NSE shooting up to ₹2,87,000 crore show that this segment is beginning to heat up.

Further, with many traders holding short positions, the possibility of the indices zipping higher pushed by short-covering remains high. The market holiday on Tuesday will add to the urgency among the trading fraternity.

The Government was in overdrive last week, pushing through many important legislative reforms, including hiking the FDI cap for insurance companies to 49 per cent, tweaking the recent changes to debt mutual funds, issuing guidelines for systemically important banks and so on.

It is not just Indian markets; many others are also racing higher despite persisting economic concerns. The IMF last week marked global economic growth for 2014 lower to 3.4 per cent, down from the forecast of 3.7 per cent.

This is largely a result of US growth being revised lower from 2.8 per cent to 1.7 per cent on account of harsh winter in the first quarter affecting demand.

With valuation in US markets too reaching the higher end of the long-term average, a correction in equity appears overdue. But since the market has a mind of its own, it is hard to predict when the rally will halt.

As the adage goes, “you cannot argue with the ticker”. The FOMC meeting scheduled for next week will be important for equity markets as it will give us clues about the direction of US yields.

Indian investors will be watching the progress of monsoon, earnings numbers of companies and foreign portfolio flows next week.

With the RBI’s next monetary policy meeting scheduled for August 5, interest rates and inflation will also be in focus.

Oscillators in the weekly chart continue in the bullish zone implying a positive medium-term view.

Daily oscillators are also reviving from the neutral zone implying that the short-term view is beginning to look up.

The Sensex made a determined effort to move higher last week; managing to scale the 26,000 level and closing above it.

The week ahead: The Sensex is poised around the important peak of 26,000. Since the previous peak recorded on July 8 was at 26,190, investors need to tread a little carefully till the Sensex manages to move beyond 26,500.

If it manages to do so, the next target will be 27,304.

But if the index reverses from current levels, it can move down to 25,428 or 24,892 again. This will set the stage for sideways movement between 25,000 and 26,500 for a few more weeks before the index moves higher.

Medium-term trend: As indicated earlier, the index faces strong resistance in the zone between 26,000 and 26,500. Break above 26,500 gives us the targets of 27,304 and 27,848.

We retain a positive medium-term view as long as the index trades above 24,000.

The Nifty too scaled a fresh life-time high of 7,841 and closed near this high.

The week ahead: The short-term view for the index is positive. But the presence of strong resistance in the zone around 7,800, where the index formed a short-term peak, warrants caution. Investors need to stay watchful as long as the index trades below 7,900.

A strong move beyond this zone will take the index to the psychologically important 8,000 and then to 8,046. A weak start will take the index down to 7,685 or 7,585.

The short-term view will turn negative only if the index declines below this level. The 50-day moving average at 7,540 will also offer support to the index.

Medium-term trend: The medium-term view for Nifty stays positive. But an inability to get past 7,900 will imply that the index can vacillate between 7,400 and 7,900 for a few more weeks before attempting to rally to 8,145. The medium-term view for the index will turn negative only on a close below 7,100.

Most global indices moved higher last week. Argentina’s Merval, however, sold off as the country moved close to a debt default. US indices held on to their gains, though NASDAQ took a hit on Friday due to the sell-off in Amazon. S&P 500 is still tantalisingly poised just under 2,000. It is to be seen if this level is cleared next week.

The Dow declined on Friday after hovering around 17,100 in the early part of the week. Immediate support for the index is at 16,850. But the short-term view will be threatened only on a close below 16,660.

Most Asian indices including the Shanghai Composite Index, the Hang Seng and the SGX Nifty recorded strong gains last week.

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