Relief rally likely to continue this week

Since demonetization became effective along with election of Donald Trump as US President, equities have outperformed other asset classes on global platform. However, within equities, there has been distinct underperformance of emerging market basket as compared to the US and Japan while Europe has largely remained unchanged.  

Demonetization and foreign fund outflow will make it challenging to restrict outflow of foreign portfolio investors(FPI) money from Indian shores. Foreign funds and institutions have been aggressive sellers as they take into account policy uncertainty, among other factors. Policy certainty and returning back of strong economic growth visibility can only arrest FPI outflow.      

The new circular released by Cabinet gives window to the people sitting on unaccounted money.

Last couple of trading sessions in the bygone week saw the silver lining. The headline Nifty index ended the prior week with gains of 1.87% on w-o-w basis. Continuity of relief rally is likely for ensuing week, as markets shift focus on RBI monetary policy slated on 7th of December.

Bets are running high for a rate cut. Lower inflation, banks being loaded with liquidity forcing them to reduce deposit rates, big slowdown in consumption; all make a compelling case for rate cut. PSU banks, metals, infrastructure, IT and select pharmaceutical stocks should attract value buyer’s interest. In the short run, Nifty is likely to oscillate between 8300 and 7900, where bias seems positive.

The writer is head-retail research, Motilal Oswal Securities Ltd