MARKET PULSE strategy is to buy run into RBI policy for pre-policy exit (27 November - 1st December), based on pent-up expectation of rate-cut which RBI is not seen to oblige or play to the gallery. Accordingly, the expectation is for pre-policy build up of bullish momentum in NIFTY into 8500 and 10Y bond into 8.15% followed by post-policy value-adjustment into 8200 and 8.35% respectively. Post this update, RBI DG stepped in to dose the heat on the pent-up euophoria by stating that RBI shift into rate cut mode is not at close given the lack of confidence on the inflationary irritants that are in play. The clarity on the same is seen to be known post Budget 2015 (on domestic factors) and post FED guidance on rate-hike momentum (extent of dilution in external tailwinds), if we read in between the lines of DG's caution (or warning) to stakeholders!
Despite the DG bolt from the blue, India financial markets continue to stay in "buy into RBI policy" mode taking comfort from positive global cues of sustainable bearish momentum on imported commodities, firm global equity markets and steady US Treasury yield, and increased confidence on conversion of domestic euophoria into tangible beneficial impact on India macroeconomic fundamentals leading to sovereign rating upgrade ahead of expectation!
RBI policy on 2nd December is still 3 weeks away; if the buy-into-policy appetite stay intact, there is high possibility of upside extension of the set weekly focus of NIFTY at 8250/8285-8365/8400 into 8465-8515 on run into 2nd Dec'14 (within rest of 2014 big-picture at 8150/8200-8500/8550); weekly close above 8320-8345 is the signal for shift of NT resistance/sell zone from 8365-8415 to 8500-8550. The focus on 10Y bond is retained at 8.15/8.20-8.35/8.40%; break-out bias if any is for extended post-policy correction into 8.40-8.65% on combined impact from hawkish RBI and US 10Y yield spike into 2.40-2.65%; stability of India-US 10Y bond spread at 5.85-6.10% is seen ideal for Rupee stability at 60.20/60.45-60.95/61.20 into end of 2014.
All taken, it is risk-neutral from now to 27th November, while risk-reward turn against investors from there to 2nd December; see baby-steps bullish extension into policy and decent correction thereafter into end 2014. Good to be with the momentum as pulse of price-actions is not weak!
Moses Harding
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