Consolidation ahead of next phase of re-rating:
Most cues stay in favour of long term bullish undertone in Indian financial markets. India would emerge as strongest growth economy of the World before end of NaMo first innings in 2019! Till then global liquidity flow will be down-hill into India, while developed economies prepare for economic revival. India is now seen as the best alternate option to make the best use of excess global liquidity at low cost. The low cost - high return leveraged opportunity for foreign investors has resulted in building dream-come-true valuation for Indian assets ahead of time, which is the worry at this stage!
NIFTY will find it tough to go past 8585-8635 resistance zone, but don't see set up of bearish momentum below 8385-8435 for 200 points back-and-forth play. It is good to stay neutral weight (if not light) to take fresh look in 2015. All taken, strategic base is firm at 8150-8200, while cues not yet clear on preparation of lift base to 8400-8450 for shift of bullish focus beyond 8600-8650.
10Y bond gains below 8.0% will be seen stretched as there is no clarity as yet on shift of operating policy rate below 8%. There is no guarantee as yet for rate cut from RBI in Q1/2015 on risks from Brent Crude and Rupee. Till emergence of better clarity on shift to 2015, retain focus at 8.0-8.15% and do not wish to chase overshoot either-way. India-US 10Y bond spread has been steady at 5.65-5.85% (inner-ring of revised short term focus at 5.50/5.65-5.85/6.0%) in traction with volatile US 10Y at set focus zone of 2.15-2.40%.
Rupee steady and in back-and-forth mode at set focus zone of 61.65/61.70-62.20/62.25. With most cues in favour (largely driven by favourable external environment and domestic optimism), $ strength against major currencies didn't have mirror impact on Rupee, emerging as the strongest global currency; unfortunately can't take pride when structural woes from twin-deficits and inflation-push supply side worries remain valid. RBI also has large appetite for the dollar till improvement in the quality of its reserves. All taken, USD/INR has established strong short/long term base at 61.20/61.45-61.70 but no major cues to suggest risk beyond 62.85/63.10-63.35 at this stage. It is prudent for stakeholders to stay risk-off at either-end. Retain focus in 12M USD/INR at 66.00-66.75/67.00 for carry-trade opportunities. For now, stay focused at 61.70-62.20 with most trades seen at 61.90/61.95-62.20/62.25 into end of 2014.
Moses Harding
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