Index Outlook: Market awaits the big fat Indian election

As the Indian electorate, encompassing over 81 crore citizens, begins the process of electing members who will govern the world’s largest democracy, surely, it cannot be business as usual for stock markets.

Investors are likely to have their eyes glued on the proceedings in Assam and Tripura — the States that kick off the polling next week.

It is likely to be politics all the way with the fine-print in the BJP manifesto — to be unveiled on Monday — determining the movement in the early part of the week.

Since the rally from the February lows is driven largely by hopes of a market-friendly NDA Government taking the reins at the Centre, any indications to the contrary, from the manifesto, will not be received well.

We are also entering the earnings season for the equity market and investors will be busy scrutinising the numbers to see if the mild signs of recovery visible in the economy are reflected in company earnings.

The growing hesitancy among market players was evident in the movement of the frontline indices last week. The Sensex and the Nifty took tentative steps higher in the early part of the week, but gave up their gains towards the weekend.

The RBI Governor did not ruin the market’s party by leaving key rates untouched.

His thingamajig with term repo was not understood by most and hence did not cause any disturbance. Awarding of the new bank licences to IDFC and Bandhan Bank also dominated conversations in a week that was unusually quiet.

Foreign institutional investors continued buying Indian stocks, bringing in $815 million so far in April.

Their tally for net equity buying for this calendar has risen to $4.4 billion. Cash volumes continued to be robust while derivative volumes were lacklustre.

Oscillators on the daily chart continue to trade in the positive zone, but there is a slight decline implying slowing short-term momentum.

Weekly oscillators are beginning to perk up slightly but their movement has largely been sideways since November.

The Sensex hit the high of 22,620 before declining to end with 26-point loss for the week.

The week ahead : A short-term downtrend is in progress since last week’s peak of 22,620. Immediate supports for this index are at 22,277 and 22,062. If the index manages to hold above the first support, it can attempt to rise to 22,620 or 22,906.

Short-term view will turn negative only on a close below 22,062.

Medium-term view : The medium-term trend in the index remains positive. But investors need to tread with care since there are a cluster of medium-term targets in the zone between 22,300 and 22,800.

The Sensex also appears to have completed a 5-wave move from the 19,963 low. Key medium-term support that investors need to watch now is at 21,573.

This level needs to be breached strongly to indicate a downward reversal. But rebound from these levels will keep the index in the range between 21,500 and 22,500 till the election outcome.

The Nifty too declined from the intra-week high of 6,776.7 to close 41 points lower.

The week ahead : The Nifty is in a short-term downtrend. Immediate supports for the index are 6,647 and 6,570.

Traders can hold their long positions as long as the index trades above 6,647. Decline below 6,570 will turn the short-term view negative.

The recent high at 6,777 will be the first short-term impediment. Move above this level will take the index to 6,872.

Medium-term trend: The medium-term view in the Nifty stays positive. But as explained last week, the index faces a strong resistance zone between 6,690 and 7,158. A medium-term reversal is possible from this region.

The index will however have to decline below 6,450 to indicate that the medium-term view has reversed lower. The high of 6,357 recorded in 2008 is also an important medium-term support.

Most global indices surged higher last week but gave up some gains on Friday. CBOE volatility index recorded the intra-week low of 12.6 before moving higher, reflecting caution among investors towards the weekend.

The DJ Euro STOXX 50 index broke out of a long-term resistance to close 1.8 per cent higher. The Dow Jones Industrial Average too has turned volatile.

It hit the intra-week high of 16,631 before ending at 16,412. We maintain the key support for this index at 16,000. Target on a breach of 16,500 is 17,200.