The domestic equity market has been experiencing swings as the bears try to overpower the resolute bulls. While the benchmark indices have been unsteady on both directions, crude prices have made a massive headway. A 25 per cent rally in Brent crude oil from $64/bbl to a high of $80/bbl has happened in the span of a month, touching the highest level since October 2018.

The bounce was courtesy the opening of travel and tourism across the globe, which has led to an improvement in demand amidst limited supply and sparked fears of heightened inflation, forcing the central banks to speed up the withdrawal of easy money.

The US Fed has already signalled increasing interest rates earlier than expected. But amidst all the speculation, the 10-year US Treasury bond yields have rallied, hitting the 1.56 per cent mark, the highest since June. The rise in US bond yields tends attract huge capital flows, diverting FIIs towards the US away from other emerging countries. Thus, it is a negative for the Indian equity market, and the rupee, which has experienced significant depreciation over the past few weeks.

But the Indian 10-year G-Sec bond yield has moved hand in glove with the US Treasury yield and rose to 6.23 per cent against an expected drop after RBI revealed the borrowing schedule, which indicated that government may borrow less than what the markets were anticipating. This put additional pressure on equities. Despite the above headwinds, the market has not experienced what can be called a meaningful correction due to strong support of DIIs, who have flushed close to Rs. 8,000 crore in the past two weeks even as FIIs have clearly shifted their interest away from India.

Event of the week

After shying away from the limelight, power stocks have made a comeback after 11 years. This week, the S&P BSE Power Index outshone the Sensex with a near vertical rally in contrast to a 2.20 per cent drop in the benchmark index. The ongoing coal shortage, rising plant load factor and a surge in the average short-term price per kWh on the energy exchanges have backed this unanticipated recovery in power stocks. Adding to this excitement is the proposed Electricity (Amendment) Bill, which through smart metering, de-licensing of distribution and easy resolution of disputes may change the face of the troubled power sector as we know today. Thus, at least in the near term, investors can ride this momentum on fundamentally strong players, albeit with some caution.

Technical Outlook

Nifty50 made a big bearish candle after eight weeks of sharp rise. Although Nifty is now trading around some short-term averages, it is still outperforming its global peers and trading overbought in the short term. So, a further correction up to 17,250 – 17,200 zone cannot be ruled out. Traders are advised to maintain a buy-on-dips approach, as the positional outlook should remain bullish as long as Nifty does not break below 17,000.


Expectations for the week

With an array of exciting announcements expected, traders can expect an action-packed week ahead. The market will attempt to read between the lines of the RBI’s monetary policy. Considering that economic activities have not yet completely reverted to pre-pandemic levels; RBI is unlikely to remove the economy’s training wheels. However, any divergence from this stance could lead to whipsaw movements.

Further, with the Opec meet to determine crude output scheduled for November, market participants should brace for more volatility in crude oil prices. Additionally, the US Fed will focus on the jobs data scheduled for release towards the end of the week to decide their next steps on tapering. Thus, caution could creep up into the Indian market. Investors are advised to be picky i .their stock selections. Nifty50 closed the week at 17,532, down 1.80 per cent.


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