Markets likely to see limited upside

Last week, markets more or less behaved the way they did in the preceding week. Benchmark indices closed lower though there was a sharp recovery in second half of the week. BSE Sensex was down by 299 points and Nifty closed lower by 74 points on weekly basis.

Amid concerns about depreciating rupee against US dollar, the Indian stock markets were under pressure. However, the market staged a smart recovery thanks to positive economic data like easing retail inflation, the fastest growth in exports, better IIP and smart recovery in rupee from lower levels. These data points improved sentiments for sure, but the inherent risks are still at a danger level.

Soon after Commerce Minister released trade data, the Finance minister, who reviewed the economy situation with Prime Minister, recognised the danger of rising CAD (current account deficit) and announced a five-point programme to control it.

RBI Governor and senior officials from Finance Ministry gave a detailed presentation to the FM and PM about the external risks which, they claimed, differed from the 2008 global meltdown.

These measures are indirectly suggesting that there is need to address the external factors to protect the growth momentum and insulate the country’s economy from crisis if any. The outcome of two-day Economic Review Meet and the measures will definitely boost the market sentiment. But keep watch on international developments on trade war and oil, currency front.

They pose an immediate threat to all developing economies. Technically, market took a support at channel bottom and 50 DMA bounced towards 50 per cent retracement of fall from August 28 high and 78.6 per cent retracement from last Friday's high. Nifty needs to sustain above 11,565 to continue the bullish momentum. A close above 11,640 only can create a possibility of making a new high.

On the downside, 11,335- 11,250 zone is crucial support for the market in near future. In last two weeks, Nifty had made lower bottoms and lower tops, which is a bearish character. And, it continued the last week’s bearish engulfing pattern by closing below the last week's close. The negative divergence in weekly RSI is still on, which is indicating the limited upside in the market.