Markets likely to continue momentum

Indian equity markets closed positively this week amidst high volatility, on account of positive global and domestic cues. Nifty which had slipped below the psychological level of 12,000 last week, after disappointment from RBI’s monetary policy, has again lifted above that mark. Market sentiments turned positive after US Fed left the interest rates unchanged and took a dovish stand while on the domestic front. The Cabinet approved changes to the Insolvency and Bankruptcy Code (IBC) and approved 100% divestment of loss-making Air India.

The sentiments got further boosted post the tweet by Donald Trump that the US and China have moved closer towards the closure of the first phase of the trade deal. Meanwhile, PM Boris Johnson winning a resounding election in the UK also lifted the markets globally as it gives the PM the mandate to pull UK out of the EU next month.

Both Nifty 50 and Sensex gained 1.4% to close at 41,010 and 12,087 respectively for the week. Even midcaps participated in the rally with Nifty Midcap100 gaining 1.2% for the week while Nifty Smallcap100 closed in red with 0.8% loss. All the sectors closed in green except Media (-1.2%), IT (-0.6%) and FMCG (-0.4%) for the week. Auto, Metals and PSU Banks were major gainers in the range of 3.4%-4.5% while rest gained in the range of 0.9%-1.8%.

Both FIIs and DIIs were net buyers of around Rs 1,500 crore until Thursday.

On the domestic front, CPI-based retail inflation shot up to a 40-month high of 5.5% in November 19 from 4.6% a month ago, led by food inflation which accelerated to an almost six-year high. Even IIP declined for the third consecutive month by 3.8% in October 19. The spike in retail inflation and the decline in IIP suggest a continuation of the combination of higher inflation and lower growth. We expect the RBI to continue prioritising higher inflation over lower growth, as evident from the December 19 monetary policy meeting.

The current market momentum can sustain next week as well provided there is more clarity on the US China trade settlement. Further, liquidity flows have been supportive which may continue for a while. The government, on its part, has been continuously supporting through a series of reforms, the latest being changes to IBC, a partial credit guarantee plan for the purchase of assets of financially sound NBFCs. While valuations remain high, positive global cues and liquidity flows may help sustain the market momentum next week as well.

Technically, Nifty formed a strong Bullish candle on a weekly scale with a highest-ever weekly close near to 12,100 marks. A small follow up could lead the fresh leg of a rally to cherish the bullish momentum.