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Indian markets could open higher, following positive Asian markets today and higher US markets on Monday

U.S. stocks ended higher Monday, bouncing after the worst weekly loss since October as equities attempted to claw back some lost ground following the worst week since October. The bounce on Monday came after an epic short squeeze that gripped Wall Street and Main Street last week, adding to worries about inflated stock valuations.

In US economic reports, the Institute for Supply Management’s manufacturing index for January slipped to 58.7 in January from 60.5 in the prior month. Meanwhile, spending on construction projects rose 1% in December at a seasonally adjusted annual rate of $1.49 trillion.

Stocks in Asia-Pacific traded higher on Tuesday morning following an overnight jump on Wall Street. In the backdrop of the numerous challenges that the finance minister faced, the Union Budget presented by her on Feb 01 is path-breaking to quite an extent. The FM continued on the Govt.’s prudent path avoiding populism. The effort is clearly attempting to spur the economic growth on a faster path by upping spending on schemes/areas which have a multiplier effect.

Markets have reacted well to the provisions of the Union Budget with the Sensex witnessing the best Budget day performance since 1997. While some of this rise can be attributed to immediate knee jerk positive reaction, some portion may be due to short covering. We will know the real impact on the equity markets only once the FPI flows reflect their reaction to the Budget provisions. While recovering global markets are supportive to the Indian market trajectory, continued fund inflows are a pre requisite for the Nifty to sustain/rise from these levels. While the immediate bullish reaction may peak out over a couple of days, a new high on the Nifty will require FPIs to remain excited on the Indian story over the medium term.

Indian benchmark equity indices broke the six day losing streak on Feb 01 as markets cheered the Union Budget 2021 presented by the FM in Loksabha on Feb 01 even as she spelt out the Modi government's plan for economic recovery. At close, the Nifty was up 646.60 points or 4.74% at 14281.20.

Nifty has reversed the latest downtrend swiftly on Feb 01 due to the Budget provisions. Reaction of the FPIs to the Budget provisions will be keenly watched and if they don't seem to mind the large absolute fiscal deficit numbers, large Govt borrowing numbers and delay in achieving the 3% fiscal deficit targets, this upward momentum can continue. 14378-14471 could be the next band of resistance for the Nifty and in case this is breached a move towards the earlier high of 14754 can be seen.

Daily Technical View on Nifty

Observation:

Markets ended with hefty gains on Monday as it cheered the Union Budget. The Nifty finally gained 646.6 points or 4.74% to close at 14,281.2. Broad market indices like the BSE Mid Cap and Small Cap indices gained less, thereby under performing the Sensex/Nifty. Market breadth was positive on the BSE/NSE. Zooming into the Nifty 15 min charts, we observe that the Nifty opened with an upgap and gradually moved higher before breaking out of the recent high of 13967 with a big 15 minute candle. As the breakout came with a big candle, it sustained and the index moved up further for the rest of the trading session. With the 20 period MA above the 50 period MA and the index having confirmed a reversal of the recent downtrend, the short term trend is now up. We therefore expect the Nifty to move higher towards the 14480 levels in the very near term. On the daily chart, we can observe that the Nifty has convincingly reversed the recent downtrend by moving up from a trend line support and convincingly closing above the 50 day SMA. This indicates that the bulls have overpowered the bears as the markets have already recovered around 50% of the losses seen during the recent correction from the life highs. The index has now just closed below the 20 day SMA and further upside momentum is likely once this MA is cleared. We therefore expect the Nifty to gradually move higher in the coming sessions towards the life highs of 14754. It is important that the Nifty does not move below the recent support of 13966 on any corrections for the short term uptrend to remain intact. We recommend using a selective buying approach and accumulate quality stocks from outperforming sectors. Strict stop losses need to be kept to control risk. Conclusion: The 1-2 day trend of the Nifty has turned up with the index breaking out of the recent highs of 13967 with a big 15 minute candle. Nifty is likely to test the 14480 levels in the very near term. Our 7-day view on the market too remains bullish as the Nifty has convincingly reversed the recent downtrend by moving up from a trend line support and convincingly closing above the 50 day SMA. Our bullish bets for the next 7 sessions would be off if the Nifty moves lower and closes below the 13661 levels.

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