Markets buoyant, pain in macros

Indian equity market continued with its upward momentum this week with solid gains on account of positive global and domestic cues. In fact, it has been up since last six trading session, making it the longest gaining streak in seven months.

On the global front, Britain and the European Union finally struck an outline on the Brexit deal after days of intense negotiations, which spurred the market sentiments. Even the trade tensions between US-China is reducing, as there is momentum to finalise the initial phase of trade deal.

On the domestic side, Finance Minister hinted at more upcoming reforms to bolster the economic growth, while the government began the stake sale in PSUs to fulfill the fiscal deficit. Thus, the positive developments on the big issues disturbing the market boosted the investor sentiments.

Nifty 50 closed at 11,662, while Sensex closed at 39,298, both up more than 3% for the week. Even the broader market participated in the rally, with both NSE Mid cap/ Small cap Index rising by 4.2%/3.1% for the week.

On the sector front, all the sectors witnessed smart rally except IT which was up just 0.6%. Auto saw the maximum gain of 7.7% followed by Realty (6.3%) and Metal (5.1%). Rest all the sectors gained in the range of 3.5%-4.5%.

Foreign Institutional Investors (FIIs) turned net buyers this week, buying continuously in last six trading sessions.

They bought equities worth more than Rs 3,200 crore during the week, while domestic institutional investors (DIIs) bought equities worth Rs 2,185 crore.

The week saw many positive developments on both global and domestic front which shot up the sentiments and led to strong market movement. The biggest development was the Brexit deal which got approved by the British Prime Minister and now awaits parliament approval.

Even the US-China is marching towards finalising the first phase of the trade deal which if successful, will reduce tensions between the two largest nations and shoot global demand.

On the domestic side, the earnings season has started on a decent note so far with most of the companies are meeting expectations.

Thus, given the positive development on both global and domestic front, along with decent earnings season so far and return of FIIs buying interest over last few trading sessions, markets sentiments should remain buoyant in near term.

On the flip side, India’s macroeconomic data continues to be weak with industrial output falling by 1.1% in August. Even trade deficit decelerated to a seven-month low of $10.9 billion in September 2019 from $13.5 billion a month ago, led by a 13.8% Y-o-Y decline in imports -- the highest fall in 38 months.

Both World Bank and IMF has cut its GDP growth estimate for India to 6% and 6.1%, respectively.

Even retail inflation climbed to 14-month high of 4% in September 2019 led by higher food inflation, while the core inflation falls to three-month low of 4.2%.

Thus, despite the jump in inflation, we believe that given the subdued macroeconomic data, the RBI may be prompted to cut the repo rate one more time in the December 2019 monetary policy meeting, which would aid growth.

Technically, Nifty formed a Bullish Candle on daily and weekly scale as Bulls are holding tight grip in the market. It started to form higher highs - higher lows from past five sessions and supports are gradually shifting higher.

Now it has to continue to hold above 11,550 zones to witness momentum towards 11,700-11,800 zones while on downside support is seen at 11,550 then 11,500 levels.

(The writer is the Head of Retail Research, MOFSL)