State polls may further give much decisive direction to the market: Epic Research

Mr. Mustafa Nadeem, CEO, Epic Research

One of the most volatile weeks ended with Nifty pairing last week's loss as it reclaimed the 10250 mark and posting biggest weekly gains since late October. It was one of those weeks where Nifty was down in a continuous moment, technically, as we saw its close below 20 Days moving average. While it covered almost half of previous week loss post RBI policy announcement and ended up just ahead of state polls next week. Indian equity markets also discounted the factor of hopes of Leading party, BJP, winning the state polls.

The week started off on the back of negative global cues as global markets saw profit booking. A tax reform bill which passed was on the table for a long time coupled with better economic data from Eurozone as the economy expanded at a pace of 0.6%, a little lower than in Q2 which was at 0.7%. A rebound in global markets was also seen later this week which further helped the emerging and Asian indices.

Status quo was maintained by RBI in its meet which made market drift further to 10050 level as further selling pressure was mounted. Technically Nifty was closed below 10 Days SMA and that was an opportunity for long-term bulls to enter the market. This was an important signal for bears as it happened only once post a bullish rally started from 7900 levels. The longer-term trend prevailed with buying seen at lower levels.

The FII and DII data will also be of a crucial importance since Net FII DII was negative in November at -4200+ Cr. It has to be noted that in last 4 months as well DII has been net buyers aggressively while FII has been on net selling month on month basis. Any significant change in the data during the crucial election stage will further be of importance. Nifty's PE ratio again climbed to above 26 level which it has not been able to sustain for a longer time in the last couple of months. Specifically, in September and in November, we have seen selling pressure and price adjustment due to stretched valuations.

As Derivatives data suggested earlier as well the range for Nifty may continue to be larger as active strikes were at 10100 to 10500. We expect the range in the coming week to be further squeezed to 10150 to 10400. A lot of action will depend on voting percentage in state and polls that may further give much decisive direction to the market.

In the coming week, we have few crucial numbers which were acting as breathing space for RBI to continue to maintain status quo. India's Industrial production which was at 3.8% and Mfg prod. which was at 3.4% will be released and crucial to watch as the revival seen in numbers need to be maintained or it was a one-off event. Inflation which was at 3.59%, highest in last few month but around comfortable levels will also be eyed.

Automobile space will continue to perform well as the year-end sale will increase the sales and further news of hike in prices in the coming month will improve the margins With that financials have been on a rising spree and may continue to do well. Metals space also looks good structurally and Tata Steel and Vedanta may take a lead.

Source : Equity Bulls

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