Mumbai, December 6: On Friday, equity markets continued their slide with Nifty ending below the psychological level of 12,000, after the Reserve Bank of India (RBI) kept the policy rate unchanged at 5.15 per cent, taking the market by surprise. Both the Sensex and Nifty closed down at 334 points or 0.8 per cent and 100 points or 0.9 per cent at 40,445 and 11,914 levels respectively. The sectors closed in the red with Public Sector Banks (PSU Banks) being the biggest losers witnessing a fall of more than 4 per cent, followed by Pharma, Cement, Telecom media, Non-Banking Financial Companies and Auto stocks.
Market sentiments turned negative as investors got worried over the prolonged slowdown in the economy. India’s economic or GDP growth came in at 4.5 per cent for the July-September quarter. In its December 5 monetary policy review meeting, the RBI also downgraded GDP forecast to 5 per cent for 2019-20 financial year, thus panicking certain investors. Banking stocks declined sharply on concern of rising G-Sec Yield which spiked 15 bps in the last two trading sessions to 1-month high of 6.66 per cent.
Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, said that RBI’s status quo confirms that it is prioritising rising inflation over grim economic growth. “We expect the inflation to remain close to or above 5 per cent by March 2020, which means that a rate cut in the next MPC in Feb 2020 is highly unlikely. Further, we continue to maintain that there will be no more rate cuts now unless inflation falls back towards 4 per cent,” he said. Thus there is a good probability of a prolonged pause over the next 3-4 quarters. Market is likely to remain range-bound in the absence of any major trigger. Further Nifty50 valuation at 17.4x FY21 captures the sharp earnings recovery expected in FY21 and leaves limited room for upside, given the downside risks to the earning estimate. Thus we continue to prefer stocks with earnings visibility coupled with balance-sheet leadership, Khemka said.
Technically, the Nifty breached its crucial support of 11,950 and formed a big red body candle on a daily chart. It also witnessed breakdown from Head and Shoulder pattern on hourly chart, which doesn’t bode well for the bulls. On weekly scale, it formed a Bearish Engulfing pattern and a sustainable move below 11,888 may lead to a correction towards 11,800 and then 11,700. On the flipside, immediate hurdle is placed at 12,050 and 12,100 levels, Khmeka said.