D-Street to focus on cues from US

Global cues, especially from the US, may determine the direction of Indian stocks in the week ahead. Indices are expected to open firm, if gains in Singapore-listed Nifty futures on Friday are any indication, after US Federal Reserve chairman nominee Janet Yellen's signal that the stimulus may continue for a while. Stocks on Indian bourses could not capture this optimism on Friday because markets were shut due to Muharram.

On Thursday, the BSE Sensex ended the day up one per cent at 20,399 while the NSE Nifty closed at 6,056, up 1.1 per cent, snapping their seven-day losing run.

Brokers said in the coming weeks, the markets would be swayed by US economic data, which will play a big role in helping the US Fed decide whether to continue its massive bond-buying programme, known as Quantative Easing (QE)3, in the current form. Stronger US economic readings could spook markets.

Fund managers said the government and the Reserve Bank of India (RBI)'s efforts to talk up the markets may also aid sentiment. The better-than-expected September quarter earnings have also sparked hopes of earnings upgrades.

Amish Munshi, senior fund manager and head of research (equities) at Tata Asset Management said, "Markets are expecting an earnings upgrade because the results were stronger than what investors expected. The positive commentary by RBI and the finance ministry hinting at some early greenshoots like the currency decline positively impacting export numbers and the lowering of the current account deficit (CAD) numbers will also lift sentiment a bit."

Last week, the RBI governor had said in his media address that CAD for the financial year would be around $56 billion as opposed to $88 billion at the beginning of the year.

Although the undertone is positive, analysts are expecting sharp and unpredictable moves in the market because of declining volumes. On the NSE, average trading volumes for November stood at Rs 10,691 crore in the cash market segment, down from Rs 11,329 crore seen in October and Rs 12,179 crore in September.

Technical analysts expect benchmark indices to rise further in the week ahead, but gains could be capped.

Ashish Chaturmohta, head of derivative and technical analysis at Fortune Equity Brokers said, "The market is showing strong momentum and the Nifty could find strong support around the psychological 6,000-levels. It could go up to 6,250-levels in the next few trading sessions."

If the Nifty slipped below the 6,000-mark, then it could trigger further liquidation of positions by foreign investors and the Nifty could see another decline of 200 points, analysts said.

"Investors were buying Nifty futures and selling Nifty options for hedging purposes. But the open interest positions have come down substantially," Chaturmohta added.

Foreign institutional investors (FIIs) extended purchases to the 27th straight trading day on Thursday. These investors net bought shares worth Rs 970 crore, according to provisional data. So far in November, FIIs have bought shares worth close to Rs 2,000 crore after pumping in Rs 18,000 crore in October.

Mid-cap stocks may continue to see activity in the days ahead.

"In the last one month, we have seen some buying in the mid- and small-cap stocks by the foreign and domestic long-term investors. For the buying to sustain, the money will have to go into these stocks as there is too much concentration in the index stocks," said Munshi.