Investors wary as Nifty only just above key support

On Friday, stocks were roiled, rupee touched new low partly as chatter about US Fed cutting down on QE3 got louder

Stock investors might need to brace for more pain in the days ahead, as the rupee’s weak outlook will continue to drag down sentiment.

Global markets will closely watch the US Federal Reserve, which will release the minutes from its Federal Open Market Committee (FOMC)’s July meeting on Wednesday. The minutes would interest investors, who will lap up every word of the debate between FOMC members on the rolling back of the monetary stimulus known as Quantitative Easing-3 (QE-3).

On Friday, stocks were roiled and the rupee touched a new low, partly as the chatter about the US Fed cutting QE3 got louder. The Reserve Bank of India’s steps last week to restrict how much Indians can invest abroad, viewed as ‘capital controls’ by the market, worried investors.

NSE’s Nifty, which closed at 5,507.85, is about one per cent above its crucial support levels of 5,450.

Analysts believe if it breaks below this level, the index could slide to even 5,200, as the fall could trigger stop-losses of traders’ positions. But, a section of the market believes a sharp decline immediately is unlikely.

“The leveraged long positions are not huge enough as of now to take the market downwards. Also, the market looks oversold now,” said Siddarth Bhamre, head-derivatives, Angel Broking. Brokers are baffled by the extent of the market’s decline on Friday, even as foreign institutional investors (FIIs) sold shares worth just Rs 560 crore and their domestic counterparts bought to the tune of Rs 730 crore.

While some in the market believe the fall was triggered by selling by some influential FIIs, others believe the lack of buyers precipitated the slide.

Fund managers said the government could spring a surprise for the market by raising diesel prices by Rs 2 a liter, which could soothe nervous investors for the time being. “Instead of panicking, the government can really turn the tide by announcing some strong measures which will send the right signals. The government and RBI are sending across the message that they do not have a grasp of the situation,” said the head of institutional equities with a US investment bank.