NIFTY Likely To Be Stuck In A Narrow Band With A Mildly Bearish Bias, As Push And Pull Forces Intersect

As expected, the NIFTY showed weakness last week, ending up marginally lower than the previous week's close. The push and pull of opposing forces continue to prevent a comprehensive breakout beyond the index's lifetime high. On one hand, domestic growth indicators remain muted, as suggested by weak IIP data prints. To add to this, headline CPI inflation inched up to 4.62% on the back of higher vegetable prices, and food inflation rose to 7.9%. On the other hand, the government's clear intent to push structural reforms through to get the economy back on track, is keeping market sentiment from fading despite the fact that the index continues to trade at a high multiple of 27-28 times earnings.

News wise, it was mixed week for the beleaguered telecom sector, with the DOT issuing notices for the recovery of the AGR dues first, followed by the FM stating later that the government is in "no hurry" to recover dues. Vodafone Group CEO Nick Read's mysterious flip flop added to the melee. Vodafone Idea rallied 27 per cent on Friday on the back of positive sentiment, albeit just 80 paisa on an absolute basis.

Technicals-wise, the market can be said to be in a 'stuck' zone at the moment. Were definitely in a bullish phase, and the index momentum is oversold on the daily charts. However, the index is conversely overbought on the weekly charts, trading near the upper Bollinger band and showing signs of an impending bearish crossover. The most likely scenario that would play out here is a flattish trajectory with a mildly bearish bias, which may take the index down another 200-300 points from present levels before the bulls return to the fray when the level intersects with the 20 WMA. Earnings will need to catch up for the market to break comprehensively past 12k - and stay there!

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