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Dalal Street week ahead: Govt firefight on rupee, CAD & global cues to drive market


NEW DELHI: The domestic equity market closed the week gone by on a positive note, buoyed by healthy macroeconomic numbers and news that the government would soon take steps to underpin the deteriorating rupee and keep a check on the current account deficit.

On Friday, the 30-share Sensex surged 373 points, or 0.99 per cent, to settle at 38,090 while the Nifty50 jumped 145 points, or 1.28 per cent, to close at 11,515.

However on a weekly basis, the equity benchmarks logged losses for the second consecutive week; with the Sensex slipping 299.18 points, or 0.78 per cent, to 38,090, and the 50-share Nifty index paring 73.90 points, or 0.64 per cent, to 11,515.

The week ahead is going to be a truncated one. The equity, commodity and forex markets will remain closed on Thursday on account of Muharram.

Macroeconomic triggers, global cues and rupee movement will be the key factors, influencing the market movement through the coming week.

“Global market trends amid trade war, rising crude oil prices and rupee movement will determine the short-term momentum of the domestic market. However, the long-term outlook remains positive. With 8.2 per cent GDP growth in last quarter, a near-normal monsoon and onset of the festive season will boost consumption demand,” said Hemang Jani, head of advisory at Sharekhan by BNP Paribas.

Here’s a list of important factors that will drive Dalal Street all through next week:

Govt steps to curb rupee fall, check CAD
Last Friday, the government announced measures to restrict the fall in the rupee and keep the current account deficit under control. The five steps announced on Friday following a meeting chaired by Prime Minister Narendra Modi to review the state of the economy include scrapping of withholding tax on masala bonds — rupee-denominated debt sold overseas — and relaxation in overseas debt regime. The steps unveiled to boost capital flows include a review of mandatory hedging conditions for infrastructure loans and permitting manufacturing sector entities to avail external commercial borrowing up to $50 million with a minimum maturity of one year. Doing away with the mandatory hedging will for now reduce demand for dollars. On Saturday, Finance Minister Arun Jaitley said the government would end the current financial year without any cut in budgeted expenditure as it is extremely necessary for economic growth. With inflation broadly under control, the government is confident that it would have a growth rate higher than projected, he said.

Rupee health under watch
A series of measures announced by the government to check the rupee slide and bring down the current account deficit are positives for the market, but one would do well to wait for more clarity to emerge, cautioned analysts. The market will closely observe the effectiveness of the steps taken by the government in the coming days. The rupee has fallen 11.1 per cent so far this year and touched an all-time low of 72.92 last week, sparking panic in the government and the market. The country’s forex reserves slipped below $400 billion as of September 9 because of RBI’s efforts to curb the rupee fall. Trade deficit soared to a near five-year high of $18 billion in July, but dipped slightly to $17.4 billion in August.

US-China trade tussle
Optimism on US-China trade talks fizzled out after reports that US President Donald Trump is likely to announce new tariffs on about $200 billion worth of Chinese imports as early as Monday, Reuters reported. Earlier, Trump had said Beijing may be slapped with further tariffs on $267 billion worth of goods, in addition to what will be targeted this week. If the US goes ahead with this plan, virtually all imports from China will come under trade tariff. So far, attempts to mitigate the trade war have not been successful. What transpires when Donald Trump and Xi Jinping see each other at the UN General Assembly in New York later this month will be a major cue for markets across the globe.

Global macroeconomic cues
Bank of Japan’s (BoJ) rate decision is expected on Wednesday. There are anticipations that BoJ may maintain its short-term interest rate target at minus 0.1 per cent and pledge to guide long-term rates around zero per cent. August CPI and core CPI data for euro zone and the UK will be released on Monday and Wednesday, respectively.

Technical outlook: Nifty looks bullish
The Nifty50 formed a bullish candle on the daily chart on Friday. The fact that it sustained its opening upward gap a day after forming a Hammer pattern may instil confidence among traders. “The Nifty50 overlapped with the swing low of 11,394, which allowed the bulls to stretch their arms further resulting into a deeper retracement. Hence, the index can stretch further till 61.8 per cent retracement of the entire previous fall, which is at 11,565. This will be a key level to watch for potential reversal. In terms of wave structure, the entire correction is turning out to be a complex one. The current pullback is part of a corrective structure and is likely to be followed by a downward led. On the downside, the gap area between 11,380 and 11,430 levels shall act as a key support from a near-term perspective,” said Gaurav Ratnaparkhi, senior technical analyst at Sharekhan by BNP Paribas.

Source: Economic Times