Moody's upgrade may see bulls returning in droves

Last week, Indian markets were sluggish facing selling pressure on rising inflation and rising bond yield. Nifty touched a low of 10094 but made a smart come-back on Thursday and Friday ending marginally down 38 points to close at 10284. Nifty Bank outperformed the Nifty and gained 0.9%. PSU banks gained 1.68% led by Bank of Baroda which gained 8% and Bank of India gained 6% while private sector banks Kotak Bank gained 3% and ICICI Bank gained 2%.

Realty sector gained the most (2.2%) in which DLF was the top performer at 7.7%. Metals melted 2.5% in which Vedanta lost 5%. Infrastructure sector was down 2.5% in which Bharti Infratel was down by 10.6% post Bharti Airtel sold its stake worth Rs 33,00 crore, BHEL lost 5% and L&T lost 3.4% on poor results and slow down of new order flows.

HDFC Life listed at 19% premium to the IPO price of Rs 290. US markets saw correction earlier in the last week amid correction in base metal prices and delay in tax reforms. Nikkei continued its reversal from the top in the last week on depreciating Yen. Moody’s upgraded India’s sovereign rating to Baa2 from Baa3 for the first time since 2004, citing continued progress in the nation’s economic and institutional reforms such as GST, demonetization, direct benefit transfer, monetary policy which are expected to drive gradual improvement in India’s fiscal metrics. The rating agency expects India’s GDP growth to accelerate to 7.5% in FY19 from 6.7% in FY18.

In the global events, European Central Bank president Draghi speech (Monday), US FOMC minutes and euro flash PMI data (Thursday) and US flash PMI data will release on Friday. US markets will remain closed on Thursday celebrating Thanksgiving Day.

The corporate second quarter of fiscal year 2018 (FY18) earnings grew in double digits for the first time in last six quarters. The 2HFY18 expected to benefit from low base of demonetization, while FY19 should be a beneficiary of normalisation of provisioning costs in BFSI. In Sensex reconstitution, YES Bank and IndusInd Bank will be included while Cipla and Lupin will be excluded effective 18th December 2017. This week, markets may remain in the broader range of 10450-10200.

Nifty broke the pattern of lower top - lower bottom on the daily and now it indicates a possible change in trend, on weekly charts shows “Hammer” pattern indicating a sharp U-turn in sentiment from bearish to bullish. Nifty has major support at 10178 and a decisive breach below the support could see a decline towards 10120 to 10080 while on the upside, break above 10350 can trigger rally towards 10435 and 10490 levels.

The writer is vice president-retail research, Motilal Oswal Securities Limited