After big gains, the rally might continue in the coming truncated week but largely there could be volatility and range bound trade, experts suggest.
The week gone by was great for the market as not only equity benchmarks, but also broader markets ended at fresh record closing highs, driven by technology, metals, auto, FMCG and PSU banks stocks. The BJP's victories in the Gujarat and Himachal Pradesh Assembly elections lifted sentiment. Global cues also lent support after the US passed a bill that slashes the corporate tax rate in the country to 21 percent from 35 percent.
Benchmark indices added more than 3 percent gains in three consecutive weeks while for the passing week, the 30-share BSE Sensex gained 1.4 percent; and the 50-share NSE Nifty rallied 1.55 percent to close a tad below the psychological 10,500-mark ahead of expiry of December futures & options contracts next week. The index hit an intraday record high of 10,501.10 on Friday.
Short covering could be one reason for rally as the rupee has been rangebound around 64-64.50 against the US dollar during the month despite FII selling, and rising bond yields and crude oil prices.
The broader markets outperformed frontline indices, with the Nifty Midcap index surged 4.4 percent and BSE Smallcap gained 4.5 percent. On the other side, the volatility has also gradually been reduced especially after the Gujarat elections, with India VIX falling to 11.5875 from 16.4075 in previous week.
After big gains, the rally might continue in the coming truncated week but largely there could be volatility and rangebound trade, experts suggest.
One reason for consolidation would be the December F&O expiry on Thursday and second would be the low volumes expected at FIIs desk and lack of cues due to Christmas holidays.
Experts expect stock-specific action to continue.
Overall, 2017 is expected to end with around 28 percent gains on the Nifty, though there could be consolidation in the last week of the year.
Amar Ambani of IIFL Private Wealth feels with FIIs now in vacation mode, subdued index action is likely and the focus on broader markets is expected to stay.
The momentum that has been built up following Gujarat Elections has been complemented by global factors as well. So, the momentum is expected to continue. However, for the Nifty to move above 10,700 and 10,800, it will need support of strong earnings growth as well as GDP growth.
Indian and global markets will remain shut on Monday for Christmas.
Here are 10 things to watch out for in the coming truncated week:-
F&O Expiry
The Nifty futures and options contracts will expire on Thursday and trading positions will be rolled over to January the series.
On Friday, Maximum Put open interest was seen at 10,000 strike followed by 10,400 while maximum Call OI was at 10,500 strike followed by 10,600 strike.
Fresh Put writing was seen at 10,400, 10,450 and 10,500 strikes while fresh Call writing was seen at 10,550 and 10,650 strikes.
As volatility is largely expected in the coming week, the 10,400 levels on the Nifty could be key to watch out for and the expiry is likely around 10,400-10,500 levels.
The Nifty 50 is expected to consolidate above 10,400 in the coming week. Eventually, it should be able to move towards 10,600.
“Shift in Put writing, as well as Call writing to a higher strike, suggests shifting of the support. Option band signifies a broader trading band between the range of 10,400 to 10,600 for next coming session.
Winter Session of Parliament
The ongoing winter session of Parliament will be important to watch out for. The Rajya Sabha has been in a deadlock since the beginning of session as the Congress is demanding that Narendra Modi apologise for allegedly insulting his predecessor Manmohan Singh during the Gujarat election campaign. So all eyes will be on how the government is able to pass the important Bills listed on its agenda.
The Goods & Services Tax (Compensation to States) Ordinance, 2017, Insolvency & Bankruptcy Code (Amendment) Ordinance, 2017, Indian Forest (Amendment) Ordinance, 2017, Motor Vehicles (Amendment) Bill, 2016, and Muslim Women (Protection of Rights on Marriage) Bill, and Prevention of Corruption (Amendment) Bill, 2013 are some of the important bills expected to be taken up.
Auto Sector
Auto stocks will remain in focus in the coming week, especially on Friday ahead of December sales data due on January 1.
Sales data have been good so far and there was no disruption due to GST rollout.
The Nifty Auto index rallied more than 30 percent in 2017 and gained over 4 percent in the passing week.
Oil Sector
Oil stocks will be in focus on Tuesday as crude oil prices are near their highest levels since 2015 after comments from Saudi Arabia and Russia stating that any exit from crude output cuts would be gradual.
Oil marketing companies (HPCL, BPCL and IOC) might be under selling pressure but oil exploration firms (ONGC and Oil India) may strengthen further.
ONGC rallied 3 percent on Friday following an increase in crude oil prices. Brent crude oil futures ended above USD 65 a barrel last week.
If crude oil rises further from here on then that will have major impact on fiscal deficit and economic growth as India imports around 80 percent of oil requirement.
Macro Data
On Friday, infrastructure output data for November (which was at 4.7 percent in October) and foreign debt for Q3 (USD 485.8 billion in previous quarter) will be released.
Foreign Exchange Reserves for the week ended December 22 (which was at USD 401.39 billion in the previous week) will also be announced on Friday.
Technical Outlook
The Nifty50 formed a robust bull candle after two bearish candles which is a bullish sign, experts said. Investors should remain long with a stop loss below 10,426 levels, they advised.
"The near term trend of Nifty is positive as per smaller and larger timeframe (like daily and weekly) and more upside could be expected in the next couple of weeks. However, due to year end, there is possibility of gradual up move amidst range bound action for next week," Nagaraj Shetti, Technical Research Analyst of HDFC Securities said.
Mitessh Thakkar of mitesshthakkar.com said the hope is that on Tuesday the market is expected to open with a gap-up and continue with the momentum. If that happens, then 10,700-10,750 should be immediate targets.
"However, if there is a gap-down then we will back to the range of 10,400-10,500, which might last for 1-2 sessions," he added.
FIIs and DIIs Flow
The money flow from foreign institutional investors could be slowed down in the coming week as FIIs generally go on leave during the last week of the year because of the Christmas holidays. However, domestic inflow is expected to continue.
"The market optimism is expected to continue due to expectation of NAV-based buying till December end," said Anita Gandhi, Whole Time Director at Arihant Capital Markets.
Domestic institutional investors were net buyers to the tune of around Rs 3,500 crore in the passing week while FIIs have net sold nearly Rs 3,000 crore worth of shares.
Corporate Action
Stocks in Focus
Prakash Industries may react to the news that SEBI has revoked its order regarding suspected shell companies.
Corporation Bank will also be in focus as its board of directors has approved additional fund raising of Rs 300 crore in one or more tranches with greenshoe option.
EID Parry may react positively as the board has approved sale of its bio pesticides business as a going concern by the way of slump sale to Coromandel International for Rs 303 crore. It also approved sale of entire stake in Parry America Inc for Rs 35.4 crore.
Reliance Communications will be in focus as a media report indicated that Reliance Jio emerged as highest bidder for the company's assets.
Global Cues
The minutes of the Bank of Japan monetary policy meeting will be released on Tuesday. On Thursday, Japan's industrial production data for November and US initial jobless claims for the week ended December 22 will be announced.
MORE WILL UPDATE SOON!!
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