Watch out for macros, earnings and Fed moves

Indian equity markets, though range-bound, managed to close in the green on the back of positive global as well as domestic cues. Markets started on a positive note after Bank of China cut its cash reserve ratio (CRR) by 50 basis points (bps), freeing up $126 billion in liquidity and reduced trade tension between US and China.

Further, during the week, the European Central Bank (ECB) decided to lower its key interest rate to minus 0.5% (a 10 bps cut) along with a €20 billion ($22 billion) monthly bond-buying (quantitative easing - QE) program starting November in a bid to stimulate the ailing eurozone economy. On the domestic side, positive macro data - with July index of industrial production (IIP) reported at an eight-month high of 4.3% along with stable August Inflation at 3.21% - cheered the markets.

Nifty 50 continued to remain within a tight range of 200 points during the week (11,100-10,900) and closed at 11,076 with gains of 1.2%. Sensex closed at 37,385, up 1.1%. Buying interest continued in the broader markets with both the NSE Mid and Small-cap Indices outperforming with gains of 2.3% and 3.2% respectively for the week.

On the sector front, most sectors closed in green baring the defensive ones like IT (-1.9%), Pharma (-0.4%) and FMCG (-0.2%) as the market was in risk-on mode. The PSU Bank Index (+5.5%) along with the Real Estate Index (+5.4%) were the biggest gainer. Metals, auto, private banks, on the other hand, were up 3-4%.

The foreign institutional investors (FII) turned net buyers during the week and bought equities worth Rs 457 crores. Domestic institutional investors (DII), on the other hand, continued to remain net buyers, having bought equities worth Rs 1902 crores during the week.

Going forward, Indian markets are likely to remain in a tight range as follow-up buying is missing at higher levels. Slower economic growth along with weak corporate earnings are likely to be key headwinds in the near term. While accommodative central banks globally, signs of progress in US-China trade talks, fall in crude oil price, good monsoon and hope of further government stimulus could provide some downside support to the market.

Announcements of August Wholesale Price Index (WPI) on Monday (September 16) and the GST Council meeting on Friday (September 20) are some of the key events that the markets would keenly track on the domestic front.

Globally the central banks would continue to remain in action with the US Fed meeting on September 17-18 where the market expectation is of another 25 bps interest rate cut and Bank of Japan meeting on September 19. We also expect RBI to follow suit and cut policy rates by 40 bps in October to bring down repo rate to 5%.

Technically, Nifty formed a bullish candle on daily as well as weekly charts, indicating strength in the market. It now has to continue to hold above 11,000 levels to extend its bounce towards 11,200-11,330 levels while on the downside key supports could be seen at 10,950-10,880 zones.

(The writer is the head of Retail Research at Motilal Oswal)