RBI policy to have a bearing

While the net fall in Nifty was meager, there was a perceptible change in the sentiment due to the steep fall on Friday from high levels. Nifty had gone up without the usual correction leading to a steep fall on Friday.

Besides, PSU Banks have reported disappointing results due to spurt in NPAs. As banking stocks constitute a sizeable portion of Nifty that tumbled on Friday. Corrections are a common feature of for the market and investors can utilise these corrections to buy quality stocks. However, the Budget is the next trigger for stock market movement. As the inflation and CAD, which are under control now, gives much scope for the interest rate reduction to spur the economic growth.

While the Budget is expected to announce path breaking measures and new stock markets discount the future and in view of the optimistic future, further optimism in markets is possible over a period of time.

Once GST becomes realty, most of the bottlenecks in inter-state trade would be removed and there would be ease of doing business with proposed changes and would attract considerable investments into the country and would further drive the markets.

For the month of February, the market movement would be driven by Q3 results, funds flows into the markets, RBI Policy decision slated on the 3rd February, Government reform measures and Rupee and crude movements besides Geo political factors.

20 DMA, 50 DMA, 100 DMA and 200 DMA are placed at about 8530, 8420, 8255 and 7840 respectively and would act as supports / resistances. Nifty is above all averages.

Nifty continues to be above 200 DMA and 50 DMA too is above 200 DMA suggesting that the long term bullish trend is intact. Nifty is quoting at a PE of about 22.45 which is more than 20 per cent above the long term PE multiple. Nifty PE, though not in bubble zone, is indicating caution and earnings need to improve over the next two quarters drastically failing which a reversion to mean is possible.

While PSU Banks seem to be enjoying high degree of margin of safety and qualify for a ‘Value Buy’ as markets can not complete the bull-run without the participation of this sector, recent results indicate that it would take considerable time for them to perform. Policy initiatives might improve sagging Infra and Realty sectors. Strong long term support would be around 7850 level and Medium term support is 8250.

For the coming week, Nifty spot is expected to be Bullish above 8850 with resistance at 8925, 9005, 9055, 9140 and is expected to Bearish below 8780 with Supports at 8685, 8610, 8560, 8475. Short term trend for Nifty is presently bearish which would be confirmed if it closes in the negative and below 8800 and would become bullish only if it closes above 950.

Breakout level for the week is 9050, and breakdown level for the week is 8725. Nifty becomes further bearish only if it continuously trades below 8725.

Advice for Traders
After the expiry of January derivative series, Bears established their hold with a massive fall on Friday. Barring any pleasant surprises in the RBI policy, further correction can be expected. However, market can be expected to rebound before Budget and a new high could be expected. While the fall is an opportunity to Buy for investors, traders need to be cautious and track the short term trend.

By: Dr B A Sastry