Gold, Rupee and Equity Markets Outlook - Details explained by ICICI Securities

Gold prices opened slightly higher on Monday and fell sharply during the first half of the session till a low of Rs 47201. However, prices did not sustain at lower levels and recovered strongly in the remaining session till a high of Rs 48847. Prices fell sharply in the last session due to a surprise cut in import duty and recovered strongly on a separate tax imposed on imports. Overall, ICICI Securities expect gold prices to consolidate in the range of Rs 48500 – Rs 49500 levels in the short-term.
 
US$INR depreciated by almost 30 paise from lows as strength in dollar index coupled with higher borrowing pulled it towards Rs 73.30 levels. However, ICICI Securities expect Rs 73.50 levels to act as immediate hurdle for the currency pair. The dollar-rupee February contract on the NSE was at Rs 73.31 in the last session. The open interest declined marginally by 4% for the February series. Intra-day trade strategy is to Sell US$INR in the range of 73.38-73.42.
 

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Market Outlook:
 
Equity benchmarks started February on a cheerful note as the Nifty zoomed 646 points on the Union Budget and concluded Monday’s session at 14281, up 4.75%. The market breadth turned positive with an Advance/Decline ratio of 2.3:1. Barring pharma, all major indices ended in the green led by financials, metal and auto.
 
Technical Outlook:
 
The Nifty respected the price and time wise maturity and maintained the rhythm of not correcting for more than a week with an average correction of  8-10%, consequently bounced back from the key support threshold of 13500. As a result, our buy on dips strategy worked well. Post Budget outcome, the index held a psychological mark of 14000, leading acceleration of upward momentum. The daily price action formed a strong bull candle with a small lower shadow, indicating the conclusion of the recent corrective phase.
 
Going ahead, ICICI Securities expects Nifty to head towards 14500 in coming sessions and eventually retest the lifetime highs of 14753. Meanwhile 13800 would act as a key support zone. Key point to highlight is that cyclicals have regained momentum led by the Bank Nifty as it witnessed faster retracement (which carries 34% weightage in the Nifty).
 
Recently, the Nifty midcap and small cap indices underwent a slower pace of retracement as over past three weeks both indices retraced 50% and 38%, respectively of preceding three weeks rally. This indicates healthy consolidation. The Nifty midcap index has been consolidating after clocking new life-time highs whereas the small cap index is still 25% away from all-time high. Thus, we expect small caps to witness catch up activity