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Below is quote on Nifty 50 closed this week by posting a strong bearish candle By Ms. Yesha Shah, Head of Equity Research, Samco Securities 

Is the taper triggering a tantrum, again?

The week that started with some optimism for D-Street, cracked in the last days as sentiments reversed. Since the FED announced that the bond tapering will be initiated later in this month, our benchmark indices have been lacking vitality. The key question to ponder is whether the markets’ tepid movement is in expectation of a Taper Tantrum 2.0? Thankfully, India currently is not in a precarious position that it was in 2013 – when the FED initiated tapering post the quantitative easing during the 2008 financial crisis. India, which was listed as being one of the most vulnerable to the after effects of a tapering and was among the ‘Fragile Five’ economies in 2013, now seems to be in a better position to manage the taper fallout. The country’s foreign exchange reserves stand at a record high of over USD 640 Billion and are more than twice as compared to 2013. External debt as a percentage of GDP, consumer inflation, current account deficit, which are few other indicators of financial vulnerability, also stand favorably when compared to 2013 signaling that India may not be fragile anymore.

The indecisiveness in the markets can more so be chalked to profit booking, since the probability of there being a prominent fall in the equity markets due to the tapering is low. India has been one of the best performing emerging markets in this year and multiple international brokerages have also been citing that Indian equities are overvalued, leading to higher prudence among investors. This combined with better opportunities available in the primary markets and inflation worries appear to be the driving forces of hesitation in the secondary space. Having said this, once FED starts tapering, investors do need to be watchful considering short term corrections can prevail as liquidity starts drying up.

Event of the week

The Auto sector dazzled this week as the hopes of normalization and a potential turnaround, led to the otherwise sluggish Nifty Auto, rising almost 0.35% this week. On the contrary, Nifty declined by 1.87% this week. Few auto-makers in their management commentaries have indicated that the auto chip shortage has bottomed out and their future performance outlook seems better backed by unabated demand and an improving supply chain situation. While the optimism among the auto-makers seems reassuring, inflation may continue to pose margin pressure. Therefore, investors may tactically place their bets in this sector on companies with strong earnings and margin visibility along with resilient balance sheet.

Technical Outlook

Nifty 50 closed this week by posting a strong bearish candle. During the week, the index made an attempt to break above 18,120, but failed as selling pressure rose. Given that the breadth of the market is weak, it is likely that higher levels may not sustain. The benchmark index is now trading around its crucial support level of 17,700. Similarly, the Bank Nifty is also trading around the rising trend line support. We suggest traders maintain a mild bearish to neutral outlook to position their trades. A break below 17,700 may lead the benchmark to test 17,500 levels.

Expectations for the week

As the result season is through, D-Street will look for cues from international factors to decide its movement. In the absence of any positive triggers, indices are expected to remain under pressure as the markets have been embracing a ‘Sell on Rise’ mood. In the coming week as well, stock specific movements will be more prevalent than movements in the market as a whole. As global macros will continue to dominate, investors should observe FII activity to weigh the sentiment and adopt a selective approach rather than venturing in any aggressive trades. Nifty50 closed the week at 17,764.80, down by 1.87%.

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