Trump impeachment makes markets jittery

Indian equity markets closed positively for the second week in a row, touching new highs every day for the last four sessions. A couple of positive developments on both the domestic and global front bolstered the market sentiments. Further, persistent foreign fund inflows helped market scale fresh highs. Hopes of global economic recovery post the US reaching an in-principle trade deal with China cheered the investors.

On the domestic front, the government is conducting Pre-Budget meetings which raised hopes for a further stimulus that could spur economic growth. RBI would also conduct a special open market operation (OMO) to bring down long-term yields. However, markets are also concerned over cut by Fitch Ratings in India's GDP growth forecast for FY20 to 4.6% and US President Donald Trump’s impeachment by the House of Representatives.

Nifty 50 and Sensex gained 1.5%/1.6% to close at 12,272/41,682 for the week. However, broader markets did not participate in the rally with Nifty Midcap100 down 0.2% for the week, while Nifty Smallcap100 was up 0.7%. All the sectors closed in green except FMCG (-0.2%). IT was the major gainer -- up 4.2%, followed by Metals (3.1%). Realty, Media and Banks were up in the range of 1.2%-1.5%.

Foreign Institutional Investors (FIIs) continued to be net buyers for the second week in a row, buying equities worth more than Rs 4,890 crore while Domestic Institutional Investors (DIIs) were net sellers to the tune of Rs 3,750 crore.

There were a couple of positive developments on the domestic front which kept the momentum positive. GST Council, despite the tax shortfall, did not tamper the rates. It also extended the annual filing date to January 31, 2020, and waived the late fee. On the banking front, Bankruptcy court has quickened its progress in clearing a backlog of large cases which would benefit the banks with windfall gains. The lenders are expected to benefit from the recovery process from four failed companies - Essar Steel, Prayagraj Power Generation, Ruchi Soya and RattanIndia Power which should be completed in December. The RBI would also buy Rs 10,000 crore worth of the current benchmark 10-year bond while selling four bonds maturing in 2020 for an equivalent amount on December 23, 2019. This will bridge the liquidity gap and lower rates without expanding the RBI’s balance sheet.

Going ahead, the market would continue to track global news flows and pre-budget developments. Near term, momentum could continue on the back of strong liquidity flows and hopes of Budget stimulus to spur economic growth.

Technically, Nifty formed a positive candle on a weekly chart. The momentum oscillator RSI is sustaining above the trend line breakout on a daily scale, indicating continuation in ongoing optimism in the coming days too. Till the time, Nifty sustains above its support zone of 12,150–12,200, we may see an up move towards 12,400 levels.

(The writer is the Head of Retail Research, Motilal Oswal Financial Services)