Sunday, 23 November 2014

The Week Ahead: Nifty All Set to Conquer 8,500 Peak

The Nifty could scale above 8,500 to new highs in the coming week as oil prices continue to tumble and the pace of reforms gathers momentum. Most fence sitters will now want to join in the stock market rally as India is seen as a long-term growth story.

With expiry of derivative contracts due on Thursday, market participants should brace themselves for higher volatility.

Last week saw the Nifty trade in a range till Thursday, but Friday witnessed a breakout on the merger announcement of ING Vyasa with Kotak Mahindra Bank. The $2.4-billion all-stock deal will result in Rs 1 lakh crore market capitalisation for Kotak Bank.

The merger deal sent banking stocks higher and undervalued PSU and quasi-PSU banks rose sharply. The CNX PSU bank index ended the week with gains of 5.7 per cent as State Bank of India led from the front with weekly gains of nearly 10 per cent.

Technically, the Nifty now is in unchartered territory and above 8,500 it sets itself up for a year-end move of 8800, which also means that the Sensex can hit 30,000 by the end of 2014.

Foreign flows have been slightly subdued as rupee weakness has led to selling by overseas investors. The strength in the greenback and buying of dollars by oil marketing companies have put pressure on the currency, which hit 62.22 before recovering to close the week at 61.75.

The sudden cut in interest rates by the People's Bank of China on Friday - the first after July 2012 - triggered a fresh wave of buying in most Asian and European markets. China's stimulus comes on the back of large liquidity infusion by Japan and indicates that 2015 could see further liquidity flows in the country.

This could see lead to continued outperformance by Indian equities even as domestic economy improves. Weakness in commodities and better governance coupled with strong domestic demand should see Indian stock indices outperform globally.

The top three Nifty gainers last week were: Kotak Bank, up 9.7 per cent, SBI, up 9.6 per cent, and Punjab National Bank, up 4.7 per cent. The top three losers were: JSPL, down 9.8 per cent, NMDC, down 5.7 per cent, and Sun Pharma, down 5.2 per cent.

Meanwhile, the Dow Jones index continues to hit new highs and ended above 17,800, while crude oil closed above $76 per barrel after hitting $74 per barrel last week.