All eyes on RBI commentary

MARKET retraces on the back of selling pressure at higher levels. There are some negative sentiments that are pulling the index lower / capping the upside. We have seen equities shrugging off some negative news that was on the back of the Evergrande and Chinese housing market bubble and possible correction due to it. As soon as we have overcome this we have witnessed a steeper rise in crude oil prices as it inches near the $80 levels, since 2014. The rise in inflation would in turn affect the Indian domestic market and also the monetary policy. The MPC is underway its 3 day meet as well.

Every other variable being the same, there is some caution which is seen underlying. The breadth was exhaustive post-European markets open which are now down more than 1.5 to almost 2 per cent. There is also some buying seen on the right side (Puts), of the option chain while OTM Calls have seen some short build-up.

We believe it would be too aggressive or too early to mark this correction as some panic but there is a cautious approach one should take given the factors above would also shake the investor's sentiment.

The 5 day ROC of 20 MA is flattening out indicating some sideways range for the market in short term with overall bias on the higher side. 17,800 – 17,820 continues to be a resistance while recent buying at lower levels of 17,300 – 17,256 is strong support. All eyes would be on RBI commentary rather than its interest rate decision which may be unchanged but its commentary would be looked upon critically which will be reflected in terms of volatility.

We maintain Buy on dips but on lower levels of 17,500 – 17,450. Also at the same time, one should remain selective when it comes to identifying strength in some sector and weaknesses in other. Metals remain in weakening after a brief period of the bullish run while Pharma and Auto are in the lagging zone. Realty is leading with IT which is seeing some short term profit booking. Energy, financials, media and pvt banks are improving.

(The author is Product Head, Finversify)