There is no reason we see outperformance of equity in next year - CapitalVia Global Research

Mr. Rohit Gadia, Founder & CEO, CapitalVia Global Research Ltd.

The globally market ended the year surprisingly well in the face of the major political event, including June's Brexit vote and Donald Trump win against the expectation of the market. Along with this US Rate hike which was in line with anticipation but pull out liquidity from the emerging market. On the top of this China's slowing growth was a source of concern for the market too. Despite all this market manages to close in green this year is phenomenal strength indication.

Domestically the week market started on a flat note after a strong selling it has witnessed last week. As selling pressure subdued close to a key support level of 7900. Shortly after we see the market to bounce back strongly as conviction from the short sellers was less around the demand zone. And the rally started to get momentum as the week progresses. Market at the end claimed the lost ground partially by sustaining above the key level of 8000.

This being a pivotal level for the market gives clear indication that it bulls who are in full control for the market this week. Staying above this level we expect the market to stay strong and recovery to find momentum going forward. Due to the increased importance and frequent highlighting of the need for Reforms by the major global leaders, we are quite positive in the coming year. We believe the low market posted at 7950 is strong support zone and it is unlikely that market will move below this level anytime soon.

Domestically among the important data, next week Nikkei Manufacturing PMI and Nikkei Services PMI is going to be key. Globally the data like Oil Inventories data and FOMC Meeting Minutes due on Wednesday are important. Along with the US job data due on Thursday will be key too. Key support from medium-term perspective is at 7950 and Resistance is at 8200 level.

Year Ahead

Equity: Post demonetisation with the money supply in the formal economy will increase it is expected that interest rates will continue their slow grind downwards. The government is likely to increase its spending to set off the adverse impact of demonetization in the economy. Both this factor we believe favourable for equity. There is no reason we see outperformance of equity in next year.

The uptrend started early this year is still intact and we view the recent correction is part of the normal pullback under the broader context of the trend. We expect market not to move below 7500 level and as we are at the lower end of the range, this is the right time to accumulate.

Bullions: Bullions led by Gold had a bullish start to the year 2016, going extremely positive in the first two months of the year reaching a level of 30095 followed by a restricted range bound movement which came to an end in the month of June posting a high of 31925.The latter half of the year saw the bears coming in and taking it back towards the previous year closing levels.

A major part of the coming year would be turbulent due to the fact that most of the fundamental factors that were adopted in 2016 would be showing results in 2017, the effect of OPEC deal, swearing in of President-elect Donald Trump as the President of United States and how he goes about implementing the policies that he declared during the elections would be the most notably highlighted among these. Other Factors that might affect the market momentarily would be Political actions taken by the big players like China, India and Russia.

Due to the increased importance and frequent highlighting of the need for Reforms by the major global leaders, we are quite positive on the coming year and see Gold breaching the high of 32815. An increasing stress on technological innovation might thrust bullions even higher in the coming year, which might contribute to them touching the 33000 before year end.

Base Metals: Base Metals took the spotlight in 2016, with all five metals keeping the traders busy exhibiting stagnation and volatility in equal amounts. The movement in Base metals was solely due to the fundamental news of incoming reforms or the data pertaining to health of large economies which signaled and increase in infrastructure growth. Keeping in view, that the follow up executions for most of the fundamental factors that were responsible for the movement in base metals would be seen in coming year; we are extremely bullish on base metals. A small period of minor correction might fall over the metals in the first quarter of the year owing to political factors; however as we progress towards the second half of 2017 smoothness would set in.

Crude Oil: Crude Oil had quite the ride in 2016 with the first five months of the year being a show of strength for the bulls followed by a period of consolidation that lasted for a major portion of the remaining year owing largely in part to the uncertainty surrounding the OPEC supply cut deal that was being designed to balance the Crude Oil prices. The highest level for Crude oil prices was seen near the end of 2016 at 3712. The coming year would be seeing Crude Oil prices reacting to the after effects of the OPEC deal; however a greater fundamental factor that might be the main mover will be the IPO by Saudi Aramco, largest IPO release coming out of Saudi Arabia that is trying to diversify its economy by reducing its dependence on Crude Oil.

Source : Equity Bulls

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