Currency is the King

Last week, US Federal Reserve announced that it would buy back over 1 trillion dollar of government debt. Though it is a bad move for the global economy in the long run, global markets rejoiced the move with the hope that thus increased dollar flow would help in reviving the world markets in the short run. Our market also joined the global party with a second consecutive positive weekly close, which is rarity nowadays.

Buy back plan resulted in weakening of US Dollar against all other major global currencies. Gold and other commodities went up in dollar terms. Crude Oil crossed psychologically important $50 levels. Reports that China was piling up base metal inventories helped base metals to post gains.

In addition to the above, positive data on housing and employment from USA resulted in a global rally in equity markets too.

Indian markets also joined the rally on the hope that FII inflows would go up here onwards. Beaten down sectors like metals and realty were the major gainers for the last week. Barring Capital Goods, almost all sectors had a positive week. Highlight of the last week was the surge in small and midcap stocks outsmarting their largecap peers.

Though the fall of headline inflation to new low levels (0.44%) raised fears of a deflationary environment, there were fresh hopes of further cutting in interest rates also.

Thanks to the huge stimulus packages announced by governments/ central banks across the globe, there is a lot of money flow into the economy and some part of it may find its way into markets also helping them to stage a relief rally.

At the same time, Nifty closing below the crucial mark of 2810 points and the Dow Jones closing below 7500 levels show that the markets are not yet fully convinced about any major revival in the equity markets. Surge in CBOE Vix also indicates that we may expect some more volatility in the market in the coming week.

As there is no major economic event in India on account of General Elections, our markets may follow the global trends particularly from USA. There is a lot of economic data going to be published in US coming week, which may set the tone for the global markets.

As we told earlier, 2810 levels (Nifty) will continue to be a strong resistance. Traders may take long position once Nifty breaks 2850 decisively however with a strict stop loss limit.

F&O expiry for March series, due for this week, may add to the volatility of the individual stocks.

Rupee may follow the global trends and it will be difficult for it to break 50 mark because of surge in crude oil prices.

Happy week ahead.