Gold, Rupee and Equity Markets Outlook explained by ICICI Securities

Gold prices started Friday’s trade on a weak note opening slightly lower and fell further during the first half of the session till a low of Rs 47111. However, prices did not sustain at lower levels and recovered strongly during the remaining session till a high of Rs 47586. Prices remained supported in the last few sessions underpinned by hopes of more stimulus in the world's largest economy. Therefore, ICICI Securities expect gold prices to trade in the range of Rs 47100 – Rs 48100 levels in the short-term.
 
The US$INR future witnessed sharp declines in the last session and futures moved to their lowest levels of more than 11 months. We expect the current trend to continue and the rupee can test 72.50 levels in coming sessions.  
 

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The dollar-rupee February contract on the NSE was at Rs 72.74 in the last session. The open interest increased by almost 1% in the February series. Intra-day strategy is to Sell US$INR in the range of Rs 72.83 – Rs 72.87.
 
The Nifty took a breather amid positive bias, after last week’s sharp up move, as it formed a small bull candle carrying a higher high-low formation. In the process, broader markets outperformed on expected lines. ICICI Securities maintain constructive stance on the Nifty with a target of 15500 in the coming month whereas prominent themes play out to be outperformance of midcap and small cap space.
 
Small cap indices of developed peers have been resilient with the US index hitting fresh life-time high. Strong positive correlation with developed market peers would act as a tailwind for domestic indices.  Locally, we expect upward shift in trajectory of small cap index, which is 18% away from life highs (midcap index already at life-time highs)
 
Sectorally, telecom, IT, banks and auto heavyweights are expected to lead the Nifty towards its projected target of 15500, as it is 161.8% external retracement of last fall (14754-13596), at 15466. The Dollar index has once again faced stiff resistance from downward sloping trend line and is currently hovering around a multi year breakdown area of 90. The prolonging of weakness in Dollar index would be key monitorable, which will act as tailwind for emerging markets and provide impetus to domestic bourses.
 
Structurally, ICICI Securities believes that the Nifty has strong support at 14600. ICICI Securities do not expect it to be breached. Hence, any temporary breather from here on should be capitalised on to accumulate quality stocks, as key support of 14600 is confluence of 38.2% retracement of current up move (13597-15257), placed at 14622 coincided with earlier consolidation breakout area around 14650.