Focus shifts to US Fed, trade war

In a highly volatile action-packed week with Bhartiya Janta Party (BJP) losing all three key states and sudden resignation of the Reserve Bank of India (RBI) governor, yet the 50-share Nifty closed near the highest point of the week at 10805, gaining 1.05% week on week. More noticeably what really stood out was the mid and small cap indices out-performance by gaining 3.15% and 3.71% respectively.

All the sectoral indices ended in green led by the PSU banks which gained 5.50%. Other gainers were Auto (4.53%), FMCG and Media rising ~2.5%. The private banks, energy and pharma sectors also advanced nearly 0.50%.

The foreign institutional investors (FII) sold equities worth Rs 1,902 crore while the domestic institutional investors (DII) bought shares of Rs 2,877 crore.

In the week gone by, the market started off with caution stance ahead of the US President Donald Trump's tweet for an ongoing trade war. The dovish European Central Bank (ECB) stance and increasing geopolitics uncertainties in Europe, state election outcome and shocked with the resignation of the RBI governor created a panic on last Tuesday. The broader Nifty had hit its lowest point of the week at 10333 but bounced back strongly as it could end the differences between RBI and the government. Volatility dropped and the market rallied for the rest of the week as the government acted quickly and appointed Shaktikanta Das as the new governor which built up an expectation for relaxation in ongoing liquidity crisis in NBFCs as well as a rate cut.

Indian Oil rose ~9% on announcement of buyback of ~3% of the equity at 149 per share and dividend of Rs 6.75/share. YES Bank gained 8.5% on likely announcement of the chairman nomination on its meeting last Thursday which has postponed to its next board meet. ONGC also announced a meeting for buyback of shares on December 20. India's October IIP rose sharply by 8.1% and CPI inflation eased to a 17-months low of 2.3%.

Key global events this week are Bank of Japan and US Fed policy meeting on Wednesday while the Bank of England monetary policy is scheduled on Thursday.

Last week, the prediction of the Nifty trading range was near to perfection. The 50-share index traded in the range of 10333 to 10839 (vs predicted range of 10350-10880). For this week, markets will take cues from the US Fed meeting outcome and any development from an ongoing trade war. It seems post-large-cap run up its time to focus on mid-cap. Nifty support levels are at 10680-10600 while resistance at 10850-10940. The probable trading range for Nifty could be between 10600 and 10940.

GLOBAL CUES

• Nifty support levels are at 10680-10600 while resistance at 10850-10940
   
• For this week, markets will take cues from the US Fed meeting outcome and any development from an ongoing trade war

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