Moody’s upgrade has changed the market mood, but it’ll be shortlived

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Khadim India and New India Assurance were down 7-15 per cent from their issue prices, respectively, while HDFC Life managed to see strong listing based on its strong management pedigree.

Global rating agency Moody’s has changed the mood of the Indian market by upgrading after 14 long years. Equity index Nifty50 successfully overcame negative sentiments after touching a low 10,100 mark. But this pullback will prove to be shortlived, as fundamentals have not changed overnight.

However, going forward, inflation could prove to be a show stopper, if October WPI data are of any indication. The WPI-based inflation for October was at a six-month high at 3.59 per cent. The continuous rise in inflation since last four months will dash the hope of rate cut and will be a cause of concern ahead of the MPC meeting in December.

The primary market continues to show sign of fatigue, as the IPOs listed during the week continued to trade below issue price. Khadim India and New India AssuranceBSE -1.21 %were down 7-15 per cent from their issue prices, respectively, while HDFC Life managed to see strong listing based on its strong management pedigree.

Moody’s upgrade has changed the market mood, but it’ll be shortlived

Event of the week

The rating upgrade for India by Moody’s certainly brought cheers to investors, but we are still in the middle of a pyramid. While the upgrade does not necessarily mean an invitation to make fresh equity investment, it is an indication that government policies have been in the right direction.

China’s substantial reduction of rating from Aa3 to A1 did not lead to a fall in the market, On the contrary, the stock market rose 20 per cent since the downgrade. Therefore, one should not read too much into the current upgrade; it is merely a short-term sentiment booster.

Technical Outlook

After a sharp fall, the market bounced backed this week on the back of the Moody’s upgrade. Such bounces are often sold into and then the market resumes its corrective stance. We believe the market will continue to correct, albeit with some bounces.

The weekly chart still signals weakness ahead. Traders should use a sell-on-rise strategy and while other should avoid positional long trades unless the stock has already corrected sharply. In general traders should be cautious on trading on the long side.

With the earnings season coming to an end, the market will keenly look for global events for further direction. It remains to be seen whether rising crude oil prices have paused or the bigger uptick is coming. Metals have entered the correction zone. They can still move higher. All these will impact headline inflation, not only in India but across the world, which will lead to an increase in interest rates.

How much of these and how quickly will it happen is anybody’s guess, but it will happen for sure given the loose money policies being followed by the central banks, while money has now started flowing into commodities, creating bigger risks for financial markets. The US Fed’s December meeting would most likely see an interest rate increase by 0.25 per cent.

Given the macro headwinds, investors should not pump fresh funds into the market and book profit selectively. The Nifty50 closed the week at 10,283, down 0.37 per cent.

[“Source-economictimes”]