The spotlight will be on the Reserve Bank of India Governor D. Subbarao next week as he takes centre-stage to present the monetary policy on Tuesday. It is to be seen if he panders to the wishes of the more loquacious by cutting rates or sticks to his view that inflation control is more important at this point. Market participants spent much of last week agonising over the RBI’s next move, making stock prices whip in both direction.

The macro data also are not giving any clues on what the RBI can or should do. The Wholesale Price Index for the month of February edged higher to 6.84 per cent but the drop in non-food manufacturing inflation to the lowest in the last three years at 3.8 per cent once again revived hopes the RBI had room to cut prices.

Similarly, growth in consumer price inflation at 10.9 per cent for February cast a pall of gloom on market proceedings eclipsing the improvement in industrial production for January. Cheer at growth in merchandise exports was also short-lived. FIIs were net buyers through the week though domestic institutions were net sellers. Globally however investors are pivoting away from Europe and emerging markets to the US and Japan. According to EPFR Global, emerging market funds witnessed outflows for the second consecutive week.

BRIC funds are also out of favour since mid 2012. They have recorded outflows for the 18th consecutive week. EPFR says that of the emerging markets themes, CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) is the flavour of the season.

Investors in India had to manoeuvre through an extremely volatile week. The Sensex closed 256 points lower, while the Nifty lost 73 points. Oscillators in the daily chart are dipping slightly, but they continue to feature in the bullish zone implying that the uptrend that began from the March 4 low continues to be in force. Weekly oscillators have declined from overbought zones. But they are still in positive region which denotes that the medium-term trend too continues to be up. Monthly oscillators too are sloping upwards.

Sensex (19,427.5)

The Sensex first plummeted to the intra-week low of 19,179 before staging a recovery last week. As explained in our last column, the area around 19,658 is a key short-term resistance for the index. The index reversed lower from this level last Monday. But the short-term view will turn negative only if the index moves below 19,120. If the Sensex continues to trade above this level, there will be the possibility of move to 19,794 or 20,174 in the upcoming sessions.

Move below 19,120 will mean that the downtrend that commenced from the 20,203 peak is resuming. Third part of this down-trend has the targets of 18,862 or 18,300.

As discussed last week, we are in the process of determining the medium-term trajectory for the index as well since the index has already retraced 32 per cent of the rally from the June 2012 low. The movement over the next couple of weeks should help us determine which of the three options discussed in our last column will be the route that the index will follow.

Nifty (5,872.6)

The Nifty hit the high of 5,971 on Monday before reversing lower last week. The short-term support to watch out for now is at 5,781. If the Nifty manages to hold above this level, it can move higher to 5,981 or 5,999 in the upcoming sessions.

But decline below 5,781 can pull the stock lower to the recent trough at 5,663.

The quandary regarding the medium-term trend in the Nifty remains unresolved. Move below 5,781 would be an indication that the bearish scenario is unfolding with the possibility of a decline to 5,679 or 5,511 in the upcoming weeks.

The recent peak at 6,112 will continue to be a key medium-term hurdle for the index.

Global cues

US equity was in vogue last week as the benchmarks moved to record highs. Other country benchmarks too put up a good show closing in the positive territory. The CBOE volatility index declined to its five-year low last week indicating a surge in investor optimism in the US. But a move below 10 indicates extremely bullish sentiment in the US market. This can be a contra-indicator signalling need for caution. The VIX has not declined below 10 since September 2007.

The Dow attracted a lot of attention as it surged to another life-time closing high at 14,514. If the momentum continues, the Dow can move on to 15,400 or 15,700 soon. The previous life-time high at 14,198 will be the key determinant of the short-term uptrend in the index.

The more broad-based S&P 500 index is, however, still featuring about 1 per cent below its life-time high. There could be some volatility as this index tries to surpass its previous peak.

Some of the Asian benchmarks such as the Hang Seng, Jakarta Composite, KLSE Composite and so on registered declines. The Nikkei bucked this trend, gaining over 2 per cent last week.

The dollar index is halting at the key resistance at 83. This is a key level to determine the outlook for the dollar for the next 12 months.

It is quite likely that the index reverses from this point to decline to 78 again in the coming months. But a strong move beyond 84 will take the index to the 88-90 zone. But for that to happen, there should be a wave of panic akin to that witnessed in October 2008 or March 2009, sending risk-aversion soaring.

> lokeshwarri.sk@thehindu.co.in

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