QE Effect & Currency Movement Dominate the Stock Markets!!

Last week we also witnessed steep fall in Rupee and record FII outflow. This came with the FED announcement of QE tapering. This means that US bonds which were trading at record low yield are now ready to go up because of Liquidity tightening. Indian Bond Market yields are quite high in terms of number but Rupee depreciation of 8% against US$ is actually bringing down the net return to as low as 1% and fall in Rupee is still not predicted to be over. Cascading effect led the Bonds to trade at upper band of yield (The 10-year 7.16% benchmark government bond yield rose to 7.40) and huge sell off on Thursday and we witnessed selling circuit there. It was evoked 45 mins later when FIMMDA(a voluntary body monitoring derivatives, money markets and debt securities markets in India) sought permission from RBI to not to restrict the markets. There was a sharp reaction in stock markets also.

Gold also retraced to $1280/ounce in the international markets and currently trading near its 2.5 years low.

The stock markets opened on a positive note were dragged downwards in the initial half of the session but was again pulled upwards by Infra Sector specifically BHEL and Auto Sector specifically M&M. Second day went bearish with Banking & Finance sectors at the fore-front of the move.Third day traded with a positive bias with Metal Sector stocks Hindalco and Sesagoa to direct the move. Fourth day opened-higher and with a gap-down which was a major turning point for the nifty to close 2.86% lower in a single day. News about Lower circuit in Bonds and Rupee depreciation lead the move. Last day went positively volatile with with some more selling pressure from retail investors and accumulation by a select few.

Last week was the fifth consistent bearish week for the nifty. Now the major support is at 5477 levels. Before this we can expect some bounce of up to 5780 levels which is a gap-filling. Nifty has crossed all major retracement levels and hence 100% retracement can be touched. Daily trend is still downwards. 5870 would be the next immediate resistance after gap-filling.