Indian stocks to take cue from global trends, Omicron
18:42, 19 December 2021
Indian stock indices are expected to trade under the shadow of the rising cases of the Omicron variant and fears that interest rates will harden at some point sooner than anticipated after the stance resorted by the biggest economies around the world.
The bellwether Bombay Stock Exchange’s 30-share Sensitive index ended at 57,011.7 points on 17 December, 3% lower from its close a week before. The most-traded National Stock Exchange’s (NSE) Nifty 50 index finished at 16,985.2 points, 3% below the level a week before. The last close of the local indices was the lowest level since 6 December.
“In absence of any major event, global cues will dictate our market trend. Participants are keeping a close watch on the Covid situation due to the new variant and related updates will continue to induce volatility in days to come,” said Ajit Mishra, vice president at Religare Securities in Mumbai.
The indices may extend losses with the Nifty 50 index likely to retest the previous swing low of the 16,900-16,700 band and in case of any rebound, the 17,150-17,350 zone would act as hurdles, Mishra said. The major indices and sectoral indicators, except for software, are witnessing pressure. Investors should align their positions according to the trend and maintain a “sell on rise” before and signs of sustainable reversal, Mishra said.
Backdrop
Global and local equity markets were under pressure last week as concerns mounted that the abundant cash in the each countries’ banking system would be short-lived and central banks would tighten monetary policies to stem any potential acceleration in inflation from that strategy. Faster inflation erodes the value of equity assets.
Last week, Indian stocks ended 3% lower as the market sentiment was jittery right from the beginning and deteriorated further as the week progressed. Apart from the hawkish stance by global central banks, the spread of the Omicron variant cases across the world turned the undertone further cautious.
At the end of last week, Lav Agrawal, a senior official in the Health Ministry said India has so far reported 151 cases of the Omicron variant across 11 states. He flagged that the fast spread of Omicron as a major cause of concern for the government.
“Omicron is spreading faster than the Delta variant in South Africa, where Delta circulation was low. It also appears to spread more quickly than Delta in places where the incidence of Delta is high, such as in the United Kingdom,” Agrawal said.
Indian indices settled around the week’s low levels. Most sectoral indices fell in tandem with the benchmarks and ended lower.
The announcement of policy tightening by central banks in the US and Europe has hurt sentiments as it comes when the global economy is again reeling under the shadow of the new Covid variant.
Support and swing
“(Stock) prices have ended below a rising trend line support which is a bearish sign for the short term. Friday’s price correction in both Nifty and Bank Nifty saw rise in open interest in the futures segment which indicates short formations. Technically, the swing lows of 16890 and 16780 would be the next support levels for the index while 17200-17300 will be seen an immediate resistance zone,” said Ruchit Jain a trading strategist at discount brokerage 5paisa.com.
For the coming week, the Nifty 50 index is expected to generate buying demand and hold November lows of 16,800 and gradually head towards the 17,500 level, ICICI Securities said.
“Structurally, index has maintained rhythm over past 20 months of not correcting for more than 11% price wise and 9 weeks time wise. With 10% correction over past 9 weeks behind us, we expect ongoing corrective phase to mature in coming week as Index has approached oversold territory. Broader market indices are expected to extend their ongoing consolidation amid stock specific action and form a higher bottom in coming week as compared to November lows,” ICICI Securities said in a note.
Cues
Investors in the local markets will look for cues from the debut of some companies that will be listed on the bourses this week, said Yesha Shah, head of equity research at Samco Securities in Mumbai.
“With primary markets buzzing, the bourses will see a rush of listing debuts this coming week. Secondary markets, on the other hand, are expected to remain under pressure in the absence of any positive occurrences. As global macros are expected to dominate, investors should keep an eye on foreign institutional investors activity to assess trends and stick to a stock-centric investing strategy in the midst of range bound index moves,” Shah said.