Gold, Rupee and Equity Markets I Outlook explained by ICICI Securities

Gold prices opened flat on Tuesday and consolidated during most of the session in the range of | Rs 46700 – Rs 47000 levels. Prices remained supported in the last session as Federal Reserve Chair Jerome Powell said the central bank would keep monetary policy accommodative as the US economy still needed support. Hence, ICICI Securities expect gold prices to recover further towards Rs 47500 level in the short-term.
 
The US$INR appreciated whereas future fell 10 paise and ended marginally above Rs 72.54 levels ahead of the expiry. We continue to believe that the rupee would appreciate and move towards Rs 72.3 levels. The dollar-rupee February contract on the NSE was at Rs 72.54 in the last session. The open interest fell almost 10% in the February series. Intra-day strategy is to Sell US$INR in the range of Rs 72.66 – Rs 72.70.
 

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Equity benchmarks snapped their past five session’s decline and ended Tuesday’s session on a positive note at 14708, up 32 points or 0.2%. The market breadth turned positive with an Advance / Decline ratio of 1.6:1. Sectorally, metal and auto outshone while financials underperformed.
 
Technical Outlook on Nifty:
 
The daily price action formed an inside bar as the index oscillated within Monday’s trading range (15010-14635), indicating breather with a stock specific action amid oversold placement of daily stochastic oscillator (placed at 10) after 800 point decline. The index is undergoing healthy retracement as it retraced 50% of post Budget rally, wherein we do not expect the index to breach the key support threshold of 14300. Meanwhile, to confirm the pause in downward momentum the index needs to form a higher high-low and decisively close above immediate resistance of 14900. Failure to do so would lead to extension of ongoing breather amid stock specific action.
 
Hence, buy on dips strategy in quality large cap and midcap stocks should be adopted as the broader structure remains positive. The ongoing healthy retracement would make the market healthy from a larger term perspective and pave the way for the next leg of the up move in coming weeks.
 
ICICI Securities constructive bias on the market is based on following observations:
 
Since May 2020, the index has not sustained below its 50 days EMA. That subsequently offered a fresh entry opportunity. Currently, the 50 days EMA is placed at 14337
 
Price wise, the index has not corrected for more than 8- 9%. In the current scenario, 8% correction from life-time highs would be at 14200
 
Time wise, secondary correction has not lasted for more than a week, since May 2020
 
On expected lines, relative outperformance of broader markets endured, gaining 1% each. ICICI Securities expect catch up activity to be seen in small caps as the midcap index is consolidating around life-time highs, whereas small cap index is still 16% away from its life-time highs