While the Sensex and Nifty have come close to all-time highs four times in the past one year but failed to surpass them, a softer October consumer inflation reading in the US has come as a shot in the arm for the market, fuelling a risk-on rally in equities and emerging market currencies. The lower-than-expected inflation number has raised expectations of smaller rate increases by the US Federal Reserve. Investors will now watch out for October US retail sales data due this week. A hot reading could pour cold water on the recent optimism around interest rates.
The Sensex closed at 61,795, up 1,181 points, or 1.95% on Friday. The Nifty surged 321 points, or 1.78%, to close at 18,349. The Sensex and Nifty hit all-time highs of 62,245 and 18,604 on October 19, 2021. Analysts now anticipate the Nifty to test 18,650-18,750 levels, meaning a jump of 1.6-2.2% from the current levels.
“Given the positive momentum, we expect the Nifty to breeze past 18,600 very soon and clinch new highs,” said Gautam Shah, founder, Goldilocks Premium Research. “Nifty at 18,100 acted like 18,600 as a stiff resistance point and saw it reverse three-four times from those levels in the past 15 months.”
Traders have created fresh bullish bets on the market of late in the wake of fresh optimism in the US. India’s Volatility Index, or VIX, closed at 14.40 – the lowest since November 2021, just when talks of policy tightening measures picked up steam. The VIX touched a high of 33.97 in March when the US Fed increased the key lending rates for the first time.
Shah said the recent uptrend in the US market is proving to be the catalyst for Indian and other emerging market equities. The inflation data and outcome of midterm elections are already priced in, he said. The 1.5% rally in the Nifty last week has resulted in technical indicators flashing bullish signals.
“The Nifty is trading above its short and long-term moving averages on both weekly and daily scales,” said Sudeep Shah, head – Technical & Derivatives Research, SBICAP Securities. “RSI, DI, and MCAD are seeing a pickup in upside momentum, indicating the Nifty is likely to scale fresh all-time high in the next couple of trading sessions.” Foreign portfolio inventors (FPIs) net bought Indian shares worth ₹3,958.23 crore on Friday, taking their month-to-date tally to nearly ₹23,000 crore of net purchases in the cash segment. In the last week of October, foreign funds flows saw a reversal with net purchases roughly worth ₹16,500 crore, after a month of relentless selling that saw the Nifty fall more than 4% after surpassing 18,000 levels in mid-September. “India’s fundamentals and macroeconomic situation, especially on the inflation and growth front currently, is much better than the US and other major economies,” said Alok Ranjan, CIO, Mutual Fund.
