Watch out for PSB merger details, macros

Indian equity markets though highly volatile, closed positively this week after the stimulus announcement from the government and rollback of surcharge on FPI. The sentiments were boosted further with the Finance Minister’s announcement of the public sector banks’ merger.

Even the US-China returning to the discussion table helped the market. Nifty 50 closed at 11,023 -- up 1.8% while the Sensex closed at 37,333, up 1.7%. Higher buying was witnessed in broader markets with both the NSE mid-cap and small-cap Indices closing positive by 1.9% and 3.9%, respectively.

On the sector front, all the sectors closed in green with real estate being the largest gainer (9.3%). On the other hand, FMCG, media, healthcare and PSU Banks were up 3-4%, private banks, IT and financial services were up 1.2-2.8%. Auto and metals were flat, up 0.3-0.5%.

Despite government withdrawing surcharge on foreign institutional investors, FIIs continue to be net sellers and sold equities more than Rs 3,600 crore during the week due to the Morgan Stanley Capital International (MSCI) rebalancing. Domestic Institutional Investors (DIIs), on the other hand, continue to be net buyers, having bought equities more than Rs 3,300 crore during the week.

For the month of August, FIIs sold equities more than Rs 16,000 crore while DIIs bought equities more than Rs 19,500 crore

On the domestic front, the government has been supportive with a slew of policy stimuli like the relaxation of FDI in retail sectors, sugar exports subsidy, bank re-capitalisation, additional liquidity for non-banking financial companies (NBFCs) and rollback of surcharge on foreign portfolio investors (FPI). Even the Reserve Bank of India accepted the Jalan committee report and agreed to transfer Rs 1.76 lakh crore to the government which will help in fiscal balance.

Globally, China also signalled that trade talks with the US would be back, fueling hopes for a deal that ends the year-long trade war between the world’s two largest economies.

Going forward, the market would be keenly awaiting PSU banks merger details which were announced after the trading hours on Friday. Further, Q2 GDP data, that saw a steep dip, and IIP data and inflation data would be released next week which would give direction to the market. The trend in global markets, progress on US-China trade war, global macro data, global bond yields, crude oil price, and currency movement would also influence the sentiments.

The nifty index remained highly volatile throughout the session and traded in a wider range of 150 points.

It drifted towards 10880 levels in the first half of the day but recovered sharply from lower zones to extend its gains towards 11040 marks and managed to close above 11000 zones.

It formed a Hammer Candle on a daily scale while High Wave Candle on a weekly scale as dips are being bought into while resistance is intact at higher zones.

Now it has to continue to hold above 11,000 zones to witness an up move towards 11,111 then 11,141 levels while on the downside supports are seen at 10,950 then 10,880 zones.

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