The Stock market before the Union Budget 2018 by Jayanta K. Aich

images-1-4During the last week, the benchmark indices hit another milestone as Nifty & Sensex registered a fresh all-time high of 11,110.10 & 36,268.19 levels respectively in Wednesday’s trading session. However, in Thursday’s session, traders decided to take some money off the table on the back of F&O expiry and the crucial event i.e. Union Budget. The 50-share NSE Nifty managed to hold 11,000-mark amid selling pressure throughout the session, before closing lower 16.30 points at 11,069.70. In January series, the Nifty rallied 5.65 percent and the Sensex rose 6.5 percent while for the week; front line indices gained more than 1.5 percent.

The benchmark indices lost ground for the first time in last seven consecutive sessions, with the Sensex falling more than 100 points on Thursday but the Nifty ended the January series with 6 percent gains. The Nifty has started closing above 11,000 levels amid some volatility. Before Budget announcement on February 1, we can see further short covering which can take Nifty higher towards 11,200.

Profit booking in technology, auto, pharma stocks, and PSU banks after the announcement of recapitalisation amount for current fiscal pushed the market lower. However, gains in private banks, metals and infra stocks capped losses. A sharp rise in oil prices and weak Asian cues due to losses in the US dollar dampened the market sentiment. Also, there was an increase in volatility during the day as traders rolled over their positions to the February series.

The reason being the market participants were quite overboard on the midcaps instead of largecap stocks. This is where profit booking is quite visible in this space before the major Budget announcement. The support from private banking and other non-banking heavyweights is continued. The first leg of profit booking was seen in IT heavyweights after continuous move in January series. These stocks are expected to pick up momentum back after a while.

The volatility has risen before the event. This is the same pattern what was seen before the last budget announcement in 2017.After the Budget in 2017 volatility had cooled-off quite sharply from 17 percent to 12 percent within few sessions. We believe the same decline may be seen this time around in absence any major event after this.

Looking at the overall chart structure, Nifty had confirmed its breakout from a Rising Channel formation and resultant indices saw a sharp rally in past few weeks. Now, the weekly RSI (14) has signaled medium term bearish divergence. Also, the 161.8% price extension of its entire move from the bottom of 850 to the top of 6357 which added to the bottom of 2253 comes near 11163.The roll spread in Nifty turned negative from 25 points on the expiry day which shows rollover of short positions in the index. On the index front, 10900 will act as an immediate support and any move below this level will pull index further lower towards 10780 / 10665 levels respectively. In case of no negative surprise, Nifty would continue to form base near 11,000 and this uptrend should continue. However, there has been some weakness seen in the midcap space which is not visible looking at the Nifty prices. Sustainability of Nifty above 11000 post-budget should lead to short covering in the index.

For the upcoming week, the big bang event will be the Union Budget, followed by earnings as well as the auto sales figures. Among global cues, US Fed meet as well as domestic and global data could dominate the Street as well.

Jayanta K Aich

Jayanta K Aich

 

 

 

 

 

 

 

 

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