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Nifty may fall below 17500 if weakness persists, US Fed may hike rate by 100 bps; watch out for these levels

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By Anand James

At the beginning of last week, we had less fear of a long liquidation as the long build up was significantly lower than what was prevailing in early April and mid August, the last two occasions when Nifty sniffed at 18k vicinity and turned lower. FIIs’ long exposure in the index future segment was boosted to 28% on Friday, despite the fall, marking an increase from 22% seen at the start of the week. It was the retail segment that was long heavy, having accumulated 72.9% of the longs in the index future segment, last week, and they have since reduced their exposure marginally to 68.9%.

Indian markets did brave the storm on Wednesday, lifting off remarkably after a gapped down opening, enticing the view that we are completely decoupled. That this argument is a bit of a stretch, came to fore in the subsequent days, when Indian stocks also cracked after pressure in US stocks persisted. More importantly, this was the fourth attempt this year, when Nifty has forayed above 18000 in search of a new record peak, but only to face rejection trades. This time around, the twin rate decisions scheduled ahead from the US as well as India were too big an event risk to ignore while on the hunt for a newer peak, thus justifying the profit booking, especially after coming close to our upside objective of 18160.

Clearly, risk off trade is in play, and this has been aggravated by a higher US inflation reading as well as other macros including recent jobless claims pointing to a healthier economy that can withstand a hawkish regime. Incidentally, a 50 bps rate hike is completely off the table, and the possibility of a 100 bps hike has risen to 24% from zero, a week back.

Also read: Nifty may slip below 17400, resistance at 17777; buy these two stocks to pocket short-term gains

The 200 day SMA is neatly parked at the 17000 mark, appearing as the first objective in the event of continuation of downtrend, followed by 16650. However, we prefer to begin the week with low expectation of a collapse, given the close above 17500. Similar close was also seen in Bank Nifty. However, should the Nifty fail to clear 17860 on the bounce, the 17500 region may not hold for long. And yet, patterns do not suggest an outright collapse though. Towards this end, how VIX plays out in the next week would be crucial. After a near 10% rise in VIX on Friday to push well above 20, there was a decline, negating the collapse momentum. We had below August peaks of 21.2, which had come even amidst FIIs returning as buyers. So, hope and recent history holds an edge, despite fears of a melt down.

(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own.)

“A certain amount of inflation is healthy given the redistribution impact”

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The Reserve Bank of India is clear that it wants to bring the consumer price index-based (CPI) inflation to 4% on a sustainable basis. While stating that the RBI seems confident of achieving this goal, Shamika Ravi, member, Prime Minister’s Economic Advisory Council, however, noted that some aspects of food inflation are not necessarily bad, given that these entail transfer to producers. In an interview with Priyansh Verma, the noted economist also highlighted the credibility loss being faced by global rating agencies, and opined that their parameters to assess the subject entities including sovereigns are biased in certain way.

Q. In a recent article, you had mentioned that socioeconomic surveys in India have tended to have a “rural bias”. Could you elaborate on this?

Q. What is the solution to this?

A. Since the census is a decadal exercise, the least one can do is to change the framework for conducting surveys. The framework should be based on the population projections, which are done every time the census is conducted. The sampling methodology for the surveys should look at the population projections, not the census. The projections have a lesser bias as they take into the account the past rate of urbanisation. The urban rate is not linear.

Q. There is also a lag in releasing key surveys, such as PLFS…

A. We need the (PLFS) reports to come out sooner. There is an issue of representation and the response rate as well. We have found that rich people don’t want to participate in surveys. This leads to bias. Data quality needs to improve. We have a lot of data, but need to improve their quality

Q. You recently criticised Moody’s Investor Service comment on Manipur. Do you feel that global rating agencies, such as Moody’s, Fitch, and S&P need to change the way they assess India’s macroeconomic fundamentals and government finances?

A. I believe the methodology that they use for assessment should not be so opaque. One needs to know how the ratings are making assessments of India’s macroeconomic fundamentals, the weightage they assign to different parameters such as, say, the Manipur incident. In many surveys that rating agencies put out, there is apparently a considerable amount of subjectivity. And that subjectivity is biased in a certain way. These agencies are going through a credibility crisis globally. If I were into capital markets, I would have looked at the rating that these agencies give and the actual flow of money.

Q. How do you see the impact of the ongoing Israel-Hamas on India’s economy?

A. Rising energy prices are obviously going to impact India. We are concerned with rising prices, whether it’s in account of the Russia-Ukraine war or the Israel-Gaza war. Anything that affects my growth rate quarter to quarter is a problem. The global economy is quite tumultuous. We are $2,300 per capita income economy. Our growth is non-negotiable. So far, we have been able to manage our growth.

Q. Can we attain 4% CPI inflation on durable basis by next year, as RBI projected, given there are risks to food inflation?

A. The RBI seems confident with its projections. It seems we’ll meet (the projections). But it may be noted that some aspects of food inflation are not bad. Particularly from the agriculture sector, this is a transfer to producers. High food inflation, with respect to some commodities, is not a cause of alarm the way it’s made out to be. A certain amount of inflation is healthy and there is a redistribution impact in the economy.

Q. RBI has often been not accurate on its inflation projections. They revised Q2 CPI projections thrice…

A. That tells you that we need to have better estimates. There is no substitute to data quality. An institution which has so much research capacity. RBI’s estimates have to get better with time.