Election results to keep St on toes

After staging a smart come back in November, December had a dull start with high volatility following global markets and cautious stance ahead of state elections outcome. The 50-share Nifty had lost 1.68% last week to close at 10694. In the broader market, the mid and small cap indices still out of form and suffering with underperformance losing 2.57% each.

Coming to sectors, the Information Technology (IT) was the lone sector which ended in the green zone while rest all the ended in negative. The Pharma sector topped the list of losers with a loss of 6.40% followed by Auto (-4.32%) and PSU Bank and Metals (-3%).

The foreign institutional investors (FII) and domestic institutional investors (DII) both sold equities worth Rs 903 crore and Rs 2267 crore respectively last week.

In the previous week highlights, the stock markets did not react to positives of temporary truce on trade war and went lower with global markets sell-off on the news of Chinese company Huawei's chief financial officer (CFO) arrest. The indication of US Fed to halt in interest rates for the short-term due to the looming recession spooked the market sentiment. In the Opec meeting, countries agreed to cut the oil production by 1.2 million barrel per day.

Domestically, the Reserve Bank of India (RBI) too changed its stance to dovish by keeping the rates unchanged. Unilever announced the buyout of Glaxo SmithKline Horlicks and other nutrition products for 3.3 billion euros, as a part of the deal Hindustan Unilever (HUL) that will merge with GSK Consumer India.

HUL (+4%) topped the chart among Nifty gainers followed by Kotak Mahindra Bank (3.70%) post rumours of Berkshire interest to acquire 10% in the company which the company officials were unaware of any such matter. On the flip side, Sun Pharma lost 16.5% post rising corporate governance issue and likely re-open of insider trading issue by Sebi. HCL Tech (-5.23%) announced the purchase of seven software products from IBM at a total cost of $1.8 billion of which $300 million will be raised via debt to fund this transaction. India's CAD widened to 2.7% of GDP in 1HFY19 from 1.8% in the year-ago period on account of a sharp increase in net oil imports.

Key global events in this week include European Central Bank (ECB) meeting scheduled on Thursday. Also, India's October month Industrial production and CPI is expected to be declared on Thursday. WPI as well as November month trade balance data will be released on Friday. State election results will be declared on Tuesday.

For the week, markets will take cues from the global markets as well as election exit polls and the actual results on Wednesday. Hence extreme volatility is expected. So far, indices are holding on due to select large-cap stocks weighing the sentiment while sell-off is visible in the broader market with underperformance across the sectors.

Last week Nifty breached its crucial 200-day moving average (DMA) and closed below the same which indicates weakness persists in the market. For the week, supports are at 10630-10580-10450-10350 while resistance at 10750-10880-10950 levels. The probable trading range for the week could be between 10350-10880 for Nifty.

VOLATILITY AHEAD

• The probable trading range for the week could be between 10350-10880 for Nifty
   
• Last week Nifty breached its crucial 200 DMA and closed below the same which indicates weakness persists in the market

The writer is VP-retail research, Motilal Oswal Financial Services