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

Gold prices started Monday’s trade on a flat note and rose strongly during most of the session till a high of Rs 47957 levels. Prices have bounced strongly in the last two sessions as investor focus returned to prospects of a substantial US stimulus package, which bolstered bullion's appeal as an inflation hedge and offset pressure from a resultant rally in equities and a firmer dollar. Hence, ICICI Securities expect gold prices to recover further towards Rs 48000 level in the short-term.
 
The US$INR spot has moved below Rs 73 levels once again and further declines can be seen if it sustains below these levels. However, continued strength shown by dollar remains a concern. The dollar-rupee February contract on the NSE was at Rs 73.10 in the last session. The open interest increased almost 8% for the February series. Intra-day strategy is to Sell US$INR in the range of 73.18-73.22.

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The Nifty opened the week with a positive gap (14924-15041) and sustained above the same throughout the sessions, highlighting market resilience. As a result, index formed a bull candle carrying higher high-low over the sixth consecutive session, indicating continuance of strong momentum, in tandem with global peers. Going ahead, we reiterate our positive stance on the index and expect the Nifty to head towards 15500 in the coming month, as it is 161.8% external retracement of past two week’s fall (14754-13596), at 15466. The rotating sectoral leadership backed by strengthening of market breadth signifies inherent market strength.
 
ICICI Securities believes, revived traction in banking, consumption, infra, IT and pharma would drive index higher. Key point to highlight is that the Nifty has rallied more than 1560 points over past six sessions, which hauled the daily stochastic oscillator in overbought territory (at 96), indicating a couple of days shallow retracement cannot be ruled out. However, for a temporary breather to materialise index need to decisively close below previous sessions' low (15015) else there will be continuance of positive bias amid stock specific action amid ongoing Q3FY21 result season.
 
Thus, capitalising on dips to go long in quality large cap and midcap would be the prudent strategy to ride the next leg of rally. Broader markets relatively outperformed the benchmark, as the Nifty midcap, small cap gained over 1.5%, each. The follow through strength post faster pace of retracement augurs well for further acceleration of upward momentum. The Nifty Midcap index has recorded a fresh all-time high, whereas the small cap index is still 20% away from all-time high. Therefore, we expect small caps to witness catch up activity within broader market space
 
Structurally, formation of higher peak, trough on the larger degree chart signifies strong up trend is intact, which makes us confident to revise support base upward at 14600, as it is confluence of 38.2% retracement of current up move (13597-15060), placed at 14562 coincided with earlier consolidation breakout area around 14650.