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AUGUST <strong>2016</strong><br />
TECHNICAL OVERVIEW<br />
commission offering a bonanza to its 1 crore employees<br />
and pensioners also ignited the fire. The following action<br />
would have minimal impact on inflation and on<br />
government finances as provisions have been made in the<br />
budget. Consumption driven stocks like auto, FMCG and<br />
consumer durables hence found fresh buying interest in<br />
the market. On the domestic macro data front the IIP<br />
surprised positively at 1.2% in the month of May against<br />
expectations of 0.3% contraction. On the inflation front,<br />
both WPI and CPI accelerated for the month of June<br />
coming at 1.62% and 5.77% respectively. Hence it again<br />
retreat hopes of a cut in interest rate by RBI. Comfort<br />
remained in the market as FII remained net buyers though<br />
IMF trims India’s growth forecast by 0.1 percentage point,<br />
India now forecast to expand 7.4% in the two years<br />
compared with the earlier forecast of 7.5% for both,<br />
retaining its tag as the world’s fastest-growing major<br />
economy. Sentiment in the market also got the requisite<br />
support on the back of government capital infusion in the<br />
Public Sector Banks (PSBs) of Rs.22915 crore to meet the<br />
capitalization needs in the current fiscal. Crude continued<br />
to remain range-bound between $45-$50/barrel which is<br />
beneficial from India’s perspective. Too much movement<br />
of crude on both upside and down side could adversely<br />
impact India. The Q1 result season has started on<br />
disappointing note as far as IT sector companies are<br />
concerned while results of other sectors have largely<br />
been in line with estimate. On the global front both Dow<br />
Jones Industrial Average and the S&P 500 closed at life<br />
time highs indicating a risk-on rally is taking shape. It<br />
seems that the global markets have able to overcome the<br />
Britain referendum setback. In the midst of such<br />
pessimism Indian rupee stands tall amongst other<br />
emerging markets and with EU and Japan in with its<br />
negative interest rate regime, positive yield bearing bonds<br />
like US and India continues to draw Institutional interest<br />
amidst slowing world growth. Monsoon session of the<br />
parliament started with high expectation of GST securing<br />
the smooth passage. GST implementation would give the<br />
market a thumps up as it would give a boost of 1-<br />
2percent to the GDP, dramatically altering India’s indirect<br />
tax structure by replacing a string of central and local<br />
levies such as excise, value added tax and octroi into a<br />
single unified tax and stitch together a common national<br />
market. On the technical front during the month of June<br />
market traded with positive bias with its consecutive<br />
higher high formation in both daily and weekly chart, the<br />
broader market as represented by midcap and smallcap<br />
indices witnessed remarkable rally absorbing global<br />
uncertainty. The strong outperformance of the broader<br />
market indicates increased market participation and<br />
inherent strength in the ongoing rally. Change of polarity<br />
was seen after Nifty provided the necessary breakout from<br />
the downward sloping channel in the April <strong>2016</strong> and then<br />
onward Nifty had been in a secular uptrend. Now Nifty is<br />
retorting higher amidst the rising channel line. The dual<br />
pattern buildup has triggered a bullish structural<br />
turnaround with higher peaks and trough. Present structure<br />
projects immediate upside potential till 8750-8800 for the<br />
Index however on the medium term perspective presence<br />
of ‘Inverted Head & Shoulder’ formation indicates ability to<br />
surpass the all time high for Nifty. However July 2015 high<br />
of 8650-8700 will act as crucial trend deciding level for<br />
the market, sustaining above which would recognize as<br />
completion of neckline and breakout from bullish ‘Inverted<br />
Head & Shoulder’ formation. A decisive close above the<br />
immediate hurdle of 8650-8700 will open room for<br />
extension of the current up move towards 8800-8900 in<br />
the coming month. However market will remain volatile in<br />
the near term owing to global uncertainty, technically it<br />
can be explained that it is concluded due to the diverse<br />
viewpoint in RSI in different time frame with negative<br />
divergence hence Nifty might extend its consolidation<br />
within 8400-8900 amid stock specific activity. Other global<br />
peers like DJIA is now at its all time high too supportive of<br />
the present rally while Crude oil prices remains capped<br />
and are now at 2-months low, Indian rupee shows extreme<br />
resilience compared to other emerging peers. Hence it<br />
seems that other correlated market too augurs well for the<br />
sustainability of the upmove in the coming month.<br />
According to Elliot wave perspective Nifty need to sustain<br />
above 8650-8700 in order to recognize as ‘Double<br />
combination correction’ unfolding into ‘Diametric or<br />
Extracting Triangle patterns’. Hence to sum up, a decisive<br />
close above its immediate hurdle of 8650-8700 will open<br />
room for extension of the current up move towards 8800-<br />
8900 in the coming month.<br />
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