Ashika Monthly Insight August 2016

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