Markets to remain range-bound

Indian equity markets closed positively for the second week in a row following a strong rally last week. However, the week witnessed high volatility on account of mixed global and domestic cues. The global sentiments continue to be dampened led by rising coronavirus death toll and economic damage it can lead to.

However, the Fed chairman’s optimistic view of the economy uplifted the sentiments. On the domestic front, a sharp rise in CPI inflation and a decline in IIP data raised fears on economic growth revival. Also, the Supreme Court verdict on telecom companies asking them to clear their dues to the government by March 17, created further pressure on the markets.

Both Nifty 50 and Sensex were up 0.1%/0.3% to close at 12,113/41,258 for the week. However, broader markets did not participate in the rally with both Nifty Midcap100 and Nifty Smallcap100 being down 2.1% and 1.4% respectively. The majority of the sectors ended in red except IT and Media. PSU Banks, Auto, Realty and Metals were the biggest losers.

Foreign Institutional Investors (FIIs) were net buyers, buying equities worth more than Rs 700 crore till Thursday while Domestic Institutional Investors (DIIs) were net sellers to the tune of Rs 1,000 crore.

On the domestic front, the December results are coming to an end with the almost in-line season and no sharp negative surprise.

However, macroeconomic data released during the week were disappointing. IIP declined again by 0.3% in December 2019 after rising by 1.8% in November 2019, entirely attributable to lower manufacturing production. On the other hand, CPI-based retail inflation shot up to a 68-month high of 7.6% in January 2020 from 7.4% a month ago, led by an increase in core inflation while food inflation moderated. Overall, this combination of weaker growth and higher inflation is very concerning and it further weakens the case for a rate cut in the foreseeable future.

But on the positive side, S&P retained India’s rating with a stable outlook and expects a gradual recovery in the economy with GDP growth reaching 7% in two years. This is positive from a market sentiment perspective. Going forward, markets may remain range-bound due to lack of trigger or major event domestically. It would closely watch the developments with regards to the coronavirus and may remain under pressure in the near term.

Technically, Nifty formed a Doji candle on a weekly scale while a Bearish candle on a daily scale which indicates a tug of war between Bull and Bears with some supply at higher zones. At the current juncture, the index has got stuck in range and till the time, it holds above 12,000 levels, we may see ongoing optimism with the consolidative move towards 12,250 zones.

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