Weekly Outlook India Markets – 10-Nov-2019

Updated: Dec 6, 2019

Key points for the week for #India Markets

· NIFTY moved sideways during the week, mostly staying within the supply zone 11810 - 11982

· #NIFTY briefly broke above this supply zone only to be thrown back from the higher supply zone 12025 – 12100, which can be a trap for the bulls

· NIFTY INFRA – Infrastructure sector index which was stronger than NIFTY for past two months now appears weaker

· Moody's Investors Service has downgraded its outlook on India's ratings to "negative" from "stable". A similar action is likely to be followed by other agencies like S&P and Fitch

Though we expected the NIFTY to drop from the supply zone 11910 - 11982, it mostly drifted sideways. On Thursday it briefly broke higher, only to enter higher supply zone at 12025 – 12100. This could be a trap for the bulls, who would be left with very little energy to break higher after the lower supply zone would have exhausted them.

NIFTY Daily Price Chart

Another observation that cannot be ignored is – the divergence between price action and oscillator indicator that we observe. While the price was making higher highs, the oscillator was making lower highs at the respective moments. In technical terms – this is taken as a smoke signal, suggesting that a change in direction is expected.

Among the sector indices – a notably strong index during past two months has become weak during last week. In the weekly bulletin on 22nd October we highlighted that NIFTY INFRA was a much stronger index than NIFTY, indicating that the sector appeared stronger than others and was leading overall market. That index hit a resistance during the week and has shown signs of reversal. For the broad market this is a significant smoke signal.

NIFTY INFRA Daily Price Chart

Economic Outlook Fundamentals:

Another significant event on Friday was that Moody’s downgraded India’s sovereign credit outlook from Stable to Negative. Following that, Moody’s downgraded outlook on 17 leading Indian companies such as INFY, HDFC Bank, TCS, SBI, BPCL, NHAI and GAIL. Overall consequence of this would be that India and Indian companies would find it difficult to raise funds outside. As India looks to issue dollar denominated sovereign bonds, that process would become more expensive. This factor is expected to be reflected in the NIFTY price action in coming days as there will be increased downward pressure, especially if FIIs start reducing their positions.

What Next?

For now, NIFTY is bouncing from the supply zone just above 12000, which is just above a significant supply zone. The bulls will need significant firepower to convincingly break higher. In the current circumstances when Moody’s has downgraded India, and other (S&P, Fitch) are likely to follow the suit, such a bull move is less likely. We may expect FIIs to reduce their Indian holdings, pushing the markets lower.