If the BJP wins by a big margin then the market could rally or hit fresh record highs, but if it scrapes through then there could be correction in the short term which would be a good buying opportunity.
Sharp recovery in last two sessions helped the market gain more than 1 percent in the passing week, ahead of the first phase of Gujarat elections on Saturday. The rally was backed by a latest survey which said that BJP is likely to win the Gujarat elections and positive global cues post Brexit deal. At the start of the week, the market was concerned after ABP-CSDS's opinion poll said that there could be tough fight between BJP and Congress.
The two-day rally indicates that the market may have digested BJP victory in Gujarat, but has not priced in a landslide victory, experts suggest.
According to them, there could be some more upside, but as we move closer to exit polls (after second phase voting on December 14) and the outcome of Gujarat elections on December 18, the volatility is likely to increase.
Majority of experts feel the BJP is likely to win Gujarat elections but the Congress may manage to get some voting share of BJP due to demonetisation and GST concerns.
If the BJP wins by a big margin then the market could rally or hit fresh record highs, but if it scrapes through then there could be correction in the short term which would be a good buying opportunity, experts said.
The market rallied 23 percent in 2017 as it, so far, has been hopeful that BJP is likely to win general elections 2019 and as result of which there will be consistency in economic policies and reforms.
"We feel other factors will take a back seat now as all eyes are on Gujarat election. The recent opinion polls indicate the ruling party, BJP, will retain the state, but may see loss of vote share," Jayant Manglik President Retail Sales Religare Securities said.
Hence, all focus in the coming week would be on Gujarat elections, though there are other important factors like Federal Reserve rate decision, CPI inflation and factory data due to be announced.
Manglik suggests keeping leveraged positions hedged, considering the possibility of volatile swings ahead. Nifty has next hurdle at 10,350, he said.
Mustafa Nadeem, CEO, Epic Research said as derivatives data suggested earlier as well the range for Nifty may continue to be larger as active strikes were at 10,100 to 10,500.
He expects the range in the coming week to be further squeezed to 10,150 to 10,400. A lot of action will depend on voting percentage in state and polls that may further give much decisive direction to the market, he said.
Here are 10 things that will keep investors busy next week:-
Gujarat Elections
Gujarat elections are very important for BJP being a ruling party in the state for more than two decades and Narendra Modi who had been chief minister before becoming the Prime Minister of the India.
The voting for first phase (for 89 seats of Saurashtra and south Gujarat) began in Gujarat on December 9 and the second phase (for 93 seats of north and central Gujarat) will take place on December 14. The results of polls will be announced on December 18.
All state elections lined up before Loksabha elections 2019 are very important for Modi government.
Federal Reserve Meet
The Federal Reserve is scheduled to meet next week (December 12-13). Analysts largely expect the central bank to raise interest rates by 25 basis points on Wednesday, for third time in current year. Short-term interest rate is currently at 1-1.25 percent.
Macro Data
In the coming week, we have few crucial numbers - November CPI & October industrial output data on December 12 and WPI inflation on December 14 - which were acting as breathing space for RBI to continue to maintain status quo.
"India's Industrial production which was at 3.8 percent, is crucial to watch as the revival seen in numbers need to be maintained or it was a one-off event. CPI inflation which was at 3.59 percent, highest in last few month but around comfortable levels will also be eyed," Mustafa Nadeem, CEO, Epic Research said.
Apart from that, balance of trade data will be released on Monday, current account on Tuesday and foreign exchange reserves for the week ended December 8 on Friday.
India's foreign exchange reserves increased by USD 1.2 billion to touch USD 401.94 billion in the week to December 1, according to the RBI data.
IPO and Listing
Hospital operator Shalby will debut on Friday, after its issue was oversubscribed 2.82 times on December 7.
The Rs 70-crore initial public offer of Astron Paper & Board Mill will open for subscription on Friday and close on December 19, with a price band of Rs 45-50 per share.
Technical Outlook
The 50-share NSE Nifty formed a solid bull candle for the second consecutive day in a row on Friday. With the 221 points rally in two straight sessions, the index is now trading above its crucial short-term moving averages and is on track to hit 10,350 levels as long as it trades above 10,121, experts feel.
"The sharp upside bounce in Nifty could be cheering factor for bulls to make a comeback and this upside momentum is likely to continue for next week," Nagaraj Shetti, Technical Research Analyst, HDFC securities said.
The overall chart pattern is indicating a possibility of further upside potential up to 10350-75 levels by next week and there is a possibility of near term downward correction from the highs, he added.
Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities said, "The Nifty formed a Bullish Candle on the Daily chart. It managed to surpass its 50 DEMA and covered its half of the losses made in a previous week. It has to continue to hold above 10,178 to extend its move towards 10,350-10,400 zones while on the downside support exists at 10,150 then 10,094 mark."
FIIs and DIIs
FIIs and DIIs data will be of a crucial importance to watch out for in the coming week, especially before and after the outcome of Gujarat elections (December 18).
Foreign institutional investors were net sellers in four out of five sessions last week as they sold Rs 4,161 crore worth of shares but they were net buyers to the tune of Rs 19,180 crore worth of shares in November.
Domestic institutional investors have been net buyers since April 2017. In current month, they bought nearly Rs 5,200 crore worth of shares, following Rs 9,200 crore worth of buying in November.
Stocks in Focus
On Monday, Unitech may continue to lock at upper circuit after The National Company Law Tribunal on Friday allowed the government to appoint 10 nominee directors.
Hexaware may react positively after a media report indicated that Baring Asia is looking to sell 10-15 percent stake in company through block deals.
Axis Bank will be in focus as the bank received approval from shareholders to raise Rs 11,626 crore by selling a stake marquee investors.
IL&FS Engineering Services stock is likely to open higher on Monday on winning pipeline laying contract worth Rs 216 crore.
Small steel companies will be in focus after CNBC-TV18 reports quoting Cogencis that Steel Minister will consider iron ore price cap.
Max India may react negatively after Delhi Health Minister cancelled license of Max Hospital at Shalimar Bagh.
Global Cues
Global cues are likely to help the Sensex open on a positive note on coming Monday. Stronger-than-expected jobs report pushed Wall Street to record close.
Crude oil price movement will be closely watched as Brent crude futures have been trading in a range of USD 61-65 a barrel after it crossed the USD 60-mark. On Friday, it settled at USD 63.40 a barrel on Chinese crude demand and threats of a strike in Africa's largest oil exporter.
Apart from FOMC's rate decision on Wednesday, Bank of England and European Central Bank's monetary policy meeting will be held on Thursday. Analysts don't expect any change in interest rates from both central banks but the commentary would be keenly watched.
On the economic data front, Japan's producer price index (PPI) data for November will be released on Tuesday, core machinery orders for October on Wednesday and manufacturing PMI on Thursday.
In the US, November PPI data will be announced on Tuesday, CPI on Wednesday, manufacturing and services PMI on Thursday and November industrial & manufacturing production on Friday.
Europe's October industrial production data will be released on Wednesday and China's November industrial production on Thursday.
Some of the key economic data releases includes inflation data from the UK (CPI) and US (CPI and PPI), retail sales numbers from the US and UK, and jobs data from the UK and Australia.
MORE WILL UPDATE SOON!!
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