Profit Booking To Keep Indices Under Check

Indian equities are really in a sweet spot with most of the macro factors on the domestic front turning positive. And no wonder the benchmark indices are almost a striking distance away from the psychological mark of 28000. If investors could recollect, through our flag ship product Dalal Street Investment Journal we had predicted the levels of 28000 for the Sensex by December 2014. While there were many ups and downs in between for the Indian equities, raising questions about whether market would be able to sustain higher levels or not. However the positive news flow on domestic as well as global markets made it sure that the Indian equities remain buoyant taking the indices to new high levels. Just to quantify, Sensex on Monday (Last trading session) closed at 27860 and Nifty closed at 8324. These are levels which are near to all time high levels (On Monday there was some marginal amount of decline witnessed on the bourses in Sensex).

As we move ahead we feel the Indian equity indices are likely to witness some amount of consolidation or profit booking. The technical indicators are already indicating towards some amount of consolidation in near term.  However noticeable factor is, while the benchmark indices are expected to witness some amount of profit booking, we expect some amount of outperformance from the broader indices like mid cap and small cap. Both the indices were in positive on preceding trading sessions (Monday) and significantly outperformed the Benchmark index. What we want to bring to notice is both the indices are yet to reach all time high levels and hence have got some more head room for upward movement. All in all, while we expect profit booking occurring in benchmark indices, broader market indices are likely to move northwards.

As regards the Global markets most US stocks declined, pulling the S&P 500 Index down from near a record, as energy companies slumped after oil reached a three-year low and forecasts from Sprint Corp. to Priceline Group Inc. disappointed investors. Bloomberg also reported that, other data showed the trade deficit in the US widened in September as exports growth was slower. Experts feel this indicates towards how weakening global growth will affect the American economy. The gap grew by 7.6 percent to USD 43 billion, the largest since May. Another factor is that the concern over the global economy intensified as the European Commission cut its growth forecast for the euro area and said inflation will be even weaker than the European Central Bank predicts. As per schedule the ECB meets November 6th to deliberate on monetary policy amid increasing the pressure for the central bank to consider additional stimulus. While Dow closed in green with marginal gains of 17.60 points, S&P closed in red with loss of 5 points.

Taking cues from US markets, the Japanese Nikkei after witnessing good up move in the past two trading sessions is witnessing some profit booking. Nikkei is trading at 16833 (down 0.17%) and Shanghai Composite is also trading with some cuts of 0.51%. The HSBC Service PMI of less than 53 is one reason behind the same. Hang Seng is also in Red with loss of 0.60%. SGX Nifty is trading with marginal gains of 3 points.

The cues from global markets are mixed and we expect the Indian markets to remain choppy. Indices may open in green. However the profit booking would take the leading indices in red at least in initial hours of trade.