With equity benchmarks poised at critical levels, a move in either direction will set the trend for the Indian stock market in the near term for which the performance of overseas markets holds key.
The market is critically poised; if a 50-100 point move on the Nifty persists in the coming week, then the index could scale upto 5300-5400 in the near term. At the same time, if it slips 100 points, then there is a high possibility that the index could see a sharp correction. Therefore, 5100 (resistance) and 4900 (support) are crucial levels, said DD Sharma, senior vice president-research at Anand Rathi Securities.
Echoing Sharmas views, Michael Pillai of Nirmal Bang Securities said, Going forward, it is very necessary that Nifty manages to hold the 4,900 level to keep this strong momentum live. Technically, if Nifty breaks the 4,900 level in the near term which is the 50-day moving average then its quite possible that markets could drift lower to 4,830- 4,770.
Strong support for Nifty is placed at 4905 region and resistance comes at 4990-5015, unless Nifty holds above the 5K mark with solid market breadth, fresh buying should be avoided. In the short term 4830-4770 will play an important support level for the market.
For the week ended Nov 13, the Indian stock market posted the best weekly gains in the last 11 weeks. Bombay Stock Exchanges Sensex settled at 16,848.83, higher by 4.27 per cent or 690.55 points. National Stock Exchanges Nifty ended at 4998.95, up 202.8 points or 4.22 per cent compared to last week.
Investors will also look forward to monthly inflation data to be released Saturday for cues on the pace of the central bank's exit from its fiscal policy. The government will release wholesale price inflation data for October, the first of a monthly series on Nov 14.
Last week, the government discontinued the release of the weekly data, and said it would switch to publishing monthly data. In the last official weekly data, the wholesale price index rose 1.51 percent in the 12 months to Oct. 17
With inflation accelerating sharply in recent months, the Reserve Bank of India has begun contemplating hiking rates, outlining the case for preemptive monetary tightening in their last monetary policy review. The worst drought in over 30 years has led to a steep fall in agricultural output that has sharply pushed up food prices.
Officials are worried that this will feed into inflation expectations, which is a bigger danger in India compared to other economies, since public sector wages are inflation indexed. The problems of sluggish investment spending and uncomfortably high inflation put the RBI in a tough position. At Octobers monetary policy review inflation expectations appeared to be anchored.
Provided agricultural output normalises and the spring (Rabi) harvest does not disappoint, then inflation expectations should hopefully remain anchored, negating the need for rate hikes.
Raising borrowing costs would have the undesirable consequence of weighing on investment, which needs to expand rapidly to reduce the infrastructure bottlenecks that drag on Indias potential growth rate, said Nikhilesh Bhattacharya, associate economist at Moodys Economy.com.