Sensex impact of Rupee, MAT, Chinese IPO, fresh triggers awaited!

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times

Indian equity market has been struggling over past few weeks. Intraday volatility has increased given the news flow and data such as WPI figures, Industrial growth and worry about domestic demand pick up. Sensex managed to close at 27324 with some gains on Friday but has so far not taken out the upside resistance of 27600 which is important for short term positive confirmation. On downside low at 26400 is very important support. We can expect a range bound movement in current week and only a break above 27600 will resume the uptrend.

Midcap and Smallcap sectors: Selling seen over past few weeks was more prominent in Midcap and Smallcap sectors which have reached over valuation area. Pharma sector has also corrected sharply from the highs as a few of the stocks were demanding very high PE ratio which was not justified. Banking sector on the other hand has been consolidating within a range and fresh clues are awaited for future trend to emerge.

RBI steps will be crucial: WPI inflation data released last week has dropped to record low levels of -2.65%. This has raised expectations that RBI can start focusing on growth and cut the key policy rate in its upcoming monetary meeting to be held on June 2. RBI has cut interest rate twice this year and after the negative WPI figure and poor industrial growth, pressure will be build on them to take further positive steps which will be important for direction of interest sensitive stocks.

Indian Rupee: Indian Rupee had been under pressure over past few weeks and has touched the level above 64 against USD few days back. Further move above 64.50 will be a concern for RBI as Mr. Rajan has managed to reduce the volatility in Indian Rupee after taking over as governor. Move above 64.50 can trigger more USD demand thereby putting pressure on the economy.

Minimum Alternate tax (MAT): Uncertainty over MAT for years prior to April 2015 has made foreign investors nervous and has reduced confidence in existing government. Decision on MAT is going to be important to restore back confidence into Indian government and their reform policies.

China IPOs impact: Chinese equity market has been in news after as many as 20 companies have been planning to issue IPOs. It is believed that this will impact other emerging equity markets including India as Foreign institutions will probably move out of other equity markets and will start putting money in Chinese IPO that has given promising returns over past year.

Week ahead: Sensex has been moving sharply over past few days but within a range. This week the support is at 26400 and upside resistance at 27600. We can expect consolidation between this unless more clarity is obtained from the above fundamental data. From technical perspective prices have moved below 20 weeks Moving average which represents medium term direction. Investors should therefore remain cautious and wait for clear breakout!

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