Dalal Street Week Ahead: Nifty Likely To Move Lower, Important Support At 16,000

The Indian equity benchmarks snapped their three-week long winning streak for week ended June 1 on Friday as rising inflation, slowing economic growth, depreciating rupee and tight liquidity conditions dampened investors’ sentiment for equities. Meanwhile, expectations of aggressive rate hikes by the US Federal Reserve, after inflation in the Unites States touched new four decade high of 8.6 per cent in May, will further add to the bearish sentiment for markets globally, analysts said.

For the week, Sensex fell 2.6 per cent and Nifty 50 index fell 2.31 per cent.

The prices of gas, food and most other goods and services jumped in May, raising inflation to a new four-decade high and giving American households no respite from rising costs.

Consumer prices surged 8.6% last month from a year earlier, faster than April’s year-over-year increase of 8.3%, the Labor Department said Friday. The new inflation figure, the highest since 1981, will heighten pressure on the Federal Reserve to continue raising interest rates aggressively.

On a month-to-month basis, prices jumped 1% from April to May, much faster than the 0.3% increase from March to April. Contributing to that surge were much higher prices for everything from airline tickets to restaurant meals to new and used cars. Those price spikes also elevated so-called “core” inflation, a measure that excludes volatile food and energy prices. In May, core prices jumped a sharp 0.6% for a second straight month. They’re now 6% above where they were a year ago.

Back home, selling pressure was broad-based as ten of 15 sector gauges compiled by the National Stock Exchange ended lower led by the Nifty Consumer Durable indexes' 3.5 per cent fall. Nifty Financial Services, IT, Metal, Media, Bank, FMCG, Private Bank and Realty indices also fell between 1.6-3 per cent.

While, select auto and oil & gas shares witnessed buying interest.

Mid- and small--cap shares also succumbed to the selling pressure as Nifty Midcap 100 index dropped 1.6 per cent and Nifty Smallcap 100 index plunged nearly 3 per cent.

The Road Ahead

“Dalal Street on Friday astonished bulls and extended its selloff on a closing basis.  High inflation and slowing economic growth stir investor’s anxiety.  The Indian market would react erratically next week too after US Inflation figures and upcoming Fed meeting output. The European Central Bank also confirmed July rate hike plans that could raise inflation projections significantly,” Sumeet Bagadia, associate director at Choice Broking told Outlook Business.

Nifty has formed bearish candle on technical charts and the index is likely to remain under pressure and move lower, Bagadia explained.

“On the Technical Front, Nifty has formed a bearish candle on a weekly chart which suggests downside movement in the counter. Simultaneously in the daily chart Nifty has given closing below 21 SMA and breached its previous support of 16,243 which adds weakness in the counter. The Nifty may find support around 16,000 followed by 15,800 levels while on the upside 16,500 may act as an immediate hurdle. On the other hand, Bank Nifty has support at 33,200 levels while resistance is placed at 35,500 levels. Overall, Index looks weak on chart; sell on rise would be advisable in coming days until 16,550 level is attained,” Bagadia said.

The bears continued to dominate the Dalal Street. They were set for their first weekly decline of the month amid shrinking liquidity due to the central bank raising the repo rate by 50 basis points, a weakening rupee, higher oil prices and sustained FIIs selling. The bias remained negative and volatile for most of the sessions over the impact of aggressive policy tightening by central banks on economic growth, Bagadia noted.

Volatility To Continue

Markets are expected to remain highly volatile owing to host of economic data the pparticippants have to digest, Ajit Mishra of Religare Broking said.

“We expect volatility to remain high next week as well citing the list of important data and events. Participants will first react to the US Inflation, hitting a new 40-year high and also to the IIP data, which came in after the market hours on Friday. Going ahead, we have CPI and WPI inflation scheduled on June 13 and June 14 respectively. On the global front, the outcome of the US Fed meet will be out on June 15,” Mishra said.
 
“We expect Nifty to find support around 15,650-15,900 levels while the 16,500 and 16,800 levels would act as strong hurdles in case of any rebound,” Mishra added.