NEW DELHI: This week the fate of domestic equity markets, which largely remained buoyant last week, could be decided by important macroeconomic data points such as inflation, manufacturing and industrial production. Inflation number to be announced on Monday could play spoilsports as it is believed that retail inflation in August might have edged higher to 6.9% against 6.71% in July.
A higher inflation may strengthen the resolve of the Reserve Bank of India (RBI) to continue increasing interest rates at a higher pace. The central bank is already under the pressure to match the recent 75 basis points hike by the US Fed and the ECB.
While these numbers would weigh on the markets, equity analysts believe that the sentiments in the market remain upbeat due to improved economic statistics and continued FIIs inflow. “The direction of the market in the week ahead will be determined by cues from the global markets as well as important macroeconomic data points, such as inflation and manufacturing & industrial production data, to be released next week. Domestic retail inflation is expected to rise to 6.9% in August from 6.71% in July,” says Vinod Nair, Head of Research at Geojit Financial services.
Last week equity markets were buoyed by falling crude oil prices and strong equity market performance in overseas markets. Both Nifty and the Sensex rose 1%, with Sensex crossing the psychologically important 60,000 level once last week. Nifty also broke 17,800 level and stayed above that level.
Analysts now believe that Nifty could try its march towards 18,000 levels but may face strong resistance at those levels. On the downside, it can well get support around 17,700 levels. “Although Nifty is still below the 18000 level, many other indices have already surpassed their respective swing highs, which indicates a buying interest in the broader markets,” says Ruchit Jain, Lead Research, 5paisa.com.
Jain feels the important supports for the index are now placed around 17,650, while immediate resistance is seen around 18000. “The consolidation could continue for time being and a breakout on either side is now required for any directional move,” he added.
And even though a section of the investors is wary of higher valuation, investors at large seem to discount those concerns in favour of India’s improved macroeconomic situation. In terms of sectors, analysts believe financial sector stocks may see profit booking while technology stocks could see some pullback.