As equity benchmarks reach new highs, markets await budget sops

Indian equity markets ended the week on the positive note led by global and domestic cues. The benchmarks continued touching new highs while broader markets continued outpacing benchmarks. On the global front, phase 1 of the trade deal between US-China was signed this week.

Further, China came out with positive Q4 GDP data. On the domestic front, the quarterly earnings season kick-started on a positive note with no major negative surprise while macro data were mixed with high inflation but positive IIP data and narrowing the trade deficit.
High expectations from the upcoming budget also kept the market sentiments buoyant. However, some profit booking was seen after SC verdict came on AGR dues which was unfavorable for the telecom players.

Nifty 50 and Sensex were up by 0.8% to close at 12,352/41,945 for the week. However, broader markets outperformed the benchmarks with Nifty Midcap100/ Nifty Smallcap100 being up 4%/3.8%.

Sectorally, all the sectors ended in green except for Banks which was down -1.6%. Media was the biggest gainer with gains of 5.6%, followed by Realty (+4.3%), Pharma (+3.6%) and FMCG (+3.3%). Auto and IT gained 2.5% each while others gained in the range of 0.8%-1.5%.

FIIs continue to be net buyers, buying equities worth more than Rs 60 crore while DIIs were net sellers to the tune of Rs 3,100 crore.

CPI-based retail inflation shot up to a 67-month high of 7.4% in Dec’19 from 5.5% a month ago, led by food inflation which accelerated to over six-year high.

However, CPI inflation excluding vegetables was at 4.1% in Dec’19 - the highest in 14 months, which is worrisome. On the positive side, India’s merchandise trade deficit narrowed to $11.3 billion in Dec’19 from $12.1 billion a month ago and $14.5 billion a year ago due to a faster decline in imports than exports. Although exports declined YoY, they were at a seven-month high in absolute terms, largely because of higher non-oil exports on a sequential basis. We expect crude oil prices to hover around the range of $65 per barrel, which might keep the import bill muted.

Market sentiments continue to be high on the back of tax sops expected from the budget, earnings recovery and the signing of an initial trade deal between US-China which would open the gate for future talks. Expectations to the runup to the budget are expected to drive certain sectors related to Agri, rural, fertilizers, PSUs, Infra and construction. Next week key results to watch out for would be ICICI Bank, JSW Steel, Zee, Havells, HDFC AMC, etc.

Technically, Nifty is currently hovering around its strong hurdle of Rising Trendline on the weekly chart. Though the index is trading near its resistance level, we are not seeing any noticeable weakness in prices.

Thus, traders are advised to refrain from taking pre-emptive shorts till Nifty sustains above its immediate support of 11280 – 12293 zone. While major support exists at 12150 levels. On the flipside, resistance is placed in the zone of 12450 – 12500.”