D-Street may turn indecisive next week as Fed takes center stage

The US central bank is widely expected to announce that it will accelerate the timing of its tapering of the bond-buying program launched last year after data showed that consumer price inflation in the US was at 6.8 per cent in November.

US Fed Chief Jerome Powell has already thrown his weight behind an accelerated tapering and suggested that inflation in the US may no longer be transitory. The Fed’s change in stance was the cue for foreign investors to accelerate their selling intensity in emerging markets like India.

Foreign investors were net sellers to the tune of Rs. 9,676 crore this week in the secondary market yet that did not pull down the market thanks to robust buying from domestic institutional investors. The benchmark indices – Nifty50 and BSE-Sensex – ended the week more than 2 per cent higher each while broad market indices rose 3-4 per cent.

Banking stocks that were at the forefront of the selling pressure last week did most of the heavy lifting in the week gone-by, aided by short covering in the futures market and buying from mutual funds. The Nifty Bank index ended the week 2.5 per cent higher.

Yet, technical analysts are still not convinced that the market has turned a corner.

“The last two trading sessions of the week exhibited indecisiveness and Nifty50 continues to trade below the major rising trend line. Traders are, therefore, advised to maintain a neutral to mild bearish outlook till Nifty holds its ground above 17,550 levels,” said Yesha Shah, head of equity research at Samco Securities.

On the sectoral front, experts expect the reopening theme to remain a preferred bet among investors given receding concerns around the Omicron variant of Covid-19. This week, sectors such as theaters, aviation, hotels and other contact-intensive sectors saw hefty gains due to covering of short positions taken during the emergence of the new variant.

State-owned lenders will be in focus as the Cabinet is expected to pass the new amendments to the Banking Regulation Act that will enable the government to lower its stake in such entities to below 50 per cent, hence paving the way for their privatization.

For many, broader markets are likely to remain outperformers as they are less affected by selling pressure from foreign investors and are benefitting from the receding concerns around Omicron.

“Traders advised to keep ‘buy on dips’ strategy and remain stock specific as action is being witnessed in the broader market,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.