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

Gold prices opened slightly lower on Wednesday and fell further during most of the session till a fresh eight-month low of Rs 46162.   Gold Prices have been falling gradually in the last few sessions as surging US treasury yields and a firmer dollar continued to take a toll on the metal. Therefore, ICICI Securities expect gold prices to remain weak towards Rs 45200 level in the short-term.
 
The US$INR future partly continued its momentum and gained for a second day. Dollar index moving higher provided support to the pair but we feel upsides could be limited in the pair. The dollar-rupee February contract on the NSE was at Rs 72.80 in the last session. The open interest declined almost 7% in the February series. Intra-day strategy is to Sell US$INR in the range of Rs 72.84 – Rs 72.86.
 

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The daily price action formed a bear candle carrying a lower high-low, indicating extended profit booking after approaching the vicinity of our earmarked target of 15500 in the last session. In the process, broader markets relatively outperformed as the Nifty midcap and small cap indices ended in the green.
 
The slowdown after a sharp post Budget rally of 13% signifies a breather that would help the index to cool off the overbought conditions of weekly stochastic oscillator (placed at 91) and pave the way to head towards 15500 in coming weeks. The formation of higher peak and trough on the larger degree chart signifies inherent strength that makes us believe the broader bull trend is still intact. Therefore, buy on dips in quality large cap, midcaps would be a prudent strategy, as we expect the Nifty to head towards 15500 as it is 161.8% external retracement of the last fall (14754-13596), at 15466. In the process, stock specific action would remain in focus
 
Key point to highlight is that despite profit booking in the benchmark, broader markets relatively outperformed wherein Nifty midcap index maintained its record setting spree. In the process, it maintained its strong positive correlation with developed market peers as broader market indices of developed peers have been resilient with the US index hovering around a fresh life-time high. ICICI Securities expect Nifty small cap index to witness catch up activity as they are still 18% away from life-time highs.
 
ICICI Securities believes any extended breather from here on would get anchored around 14900 as we expect elevated buying demand to emerge at key support of 14900, as it is confluence of 50% retracement of post Budget rally (14470-15432), at 14950 coinciding with last week’s low of 14977.