By Rahul Shah
Equity markets globally remained impacted by worries on rising interest rates, elevated crude oil prices and liquidity tightening – which kept the market both volatile as well as jitter. markets registered losses in the last five trading days, Nifty closing at 16201 and Sensex closing at 54303, logging their first weekly losses in a month as elevated crude oil prices and mounting concerns over global monetary policy tightening eroded risk appetite. Rupee also made a all-time low 77.83 but in the last few sessions it has been very resilient and is consolidating in a narrow range despite volatility in domestic and global equities and strength in the dollar against its major crosses
The week gone by was a volatile one for stock markets as the Reserve Bank of India announced a 50-basis-point rate hike and clearly hinted at even tighter financial conditions going ahead, given elevated domestic inflation. Going forward, all eyes on the major event of the week FOMC meet on 15th June. The FOMC, which has already raised its benchmark interest rate by a cumulative 75 basis points since March 2015, is expected to raise rates by 50 basis points each in June and July, given soaring inflation in the US. The rapid pace at which interest rates and bond yields are climbing in the US increases the risk of more overseas outflows from Indian assets, as returns on financial assets in the world’s largest economy become more attractive.
The earnings season continues to remain healthy and provides a silver lining to the otherwise volatile and challenging environment. Overall for FY22, Nifty delivered an EPS of Rs733, a growth of 35% which is highest since FY04. We are now expecting 18%/16% growth in Nifty’s FY23/FY24 earnings to Rs864/Rs1002 respectively driven by BFSI, IT, O&G and Auto sectors. Nifty is currently trading around 19x FY23 PE which is at a marginal discount to its 10-year average P/E of 19.4x. However, Nifty Midcap 100 trades at around 18% premium to Nifty at 22x PE. Thus, we find more value in large-caps than mid-caps given this relative valuation equation. That said, we believe that continued earnings delivery is crucial for markets to hold amidst several global and macro headwinds.
Technically, the index has held its key support levels of 15735 and formed a short term bottom followed by consolidation and range breakout. On daily scale, it has given a breakout of the consolidation zone above 16400 and has been sustaining at higher levels. The momentum oscillator RSI has bounced from the oversold zone and is positively placed which could fuel the up move. Considering the overall chart structure, we are expecting the index to witness the buying interest on any small decline towards key support zones to extend the bounce towards 17000 level. Now, the index is expected to move to higher levels and a decisive hold of 16400 zones may see an up move towards 17000 and 17250 zones. While on the flipside, key supports are placed at 16061 and 15735 zones.
Tata Steel Futures
Target: Rs 915 | Stop loss: Rs 1,000
Tata Steel has taken resistance at the gap area and has broken the rising trend line on the daily scale. It has formed a bearish candle indicating selling pressure at higher levels. There is weakness witnessed across the metals space. RSI oscillator is also negatively placed on the daily and weekly scale. Considering the current chart structure , we advise traders to sell the stock for a down move towards 915 with a stop loss at 1000
Target: Rs 2,150 | Stop loss: Rs 2,350
SRF has given trend line breakdown on daily scale and holding below the same. It has negated higher lows formation after four weeks and resistance is gradually shifting lower. RSI oscillator is also negatively placed on the daily and weekly scale. Considering the current chart structure, we advise traders to sell the stock for a down move towards 2,150 with a stop loss at 2,350
(Rahul Shah is a Senior Vice President, Group Advisory Leader-PCG, Broking & Distribution, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)