After The Bell: A day of consolidation, what should investors do on Monday?

Market Outlook

The Indian market consolidated on August 6 after hitting fresh highs for three consecutive sessions but the Nifty still managed to close above 16,200.

Muted Asian markets and hints of a possible tightening of the policy from the central bank led to a knee-jerk reaction. The Reserve Bank of India held the repo rate steady at 4 percent and reiterated its accommodative stance to support economic recovery.

The S&P BSE Sensex ended 215 points lower at 54,227 and the Nifty was down 56 points at 16,238.

Sectorally, buying was seen in telecom, utilities, power, and industrials, while profit-taking was visible in energy, realty, metals, banks, and consumer durables.

“The RBI held economic recovery post-second wave of the Covid-19 pandemic was still nascent and maintained that the shadow of rising inflation would pass,” CRISIL Research said in a note.

“But its announcement of greater absorption of surplus liquidity through variable-rate reverse repo (VRRR) operations could be read as the beginning of its imminent exit from unconventional monetary easing,” it said.

On the broader market front, the BSE midcap index was up 0.23 percent, while the S&P BSE small-cap index rose 0.28 percent.

“Following a flat opening, the domestic market fell into the red as profit booking was witnessed in key sectors like Banking after the announcement of RBI monetary policy. Negative cues from Asian markets also added pressure on the domestic market,” Vinod Nair, Head of Research at Geojit Financial Services, said.

“The policy was in line with market expectations. The RBI continued to advance its super-easy monetary policy, keeping its focus on economic recovery. On the sideline, the CPI forecast was increased to 5.7 percent from 5.1 percent for FY22,” he said.

High global inflation has started to impact other emerging markets’ monetary policy and currencies. Some have increased rates, while others will do so in the future, Nair said.

Analysts said it is still a buy on dips market and the consolidation on August 6 should not be considered a sign of weakness. The crucial support for the index is placed at 16,000-16,050.

Here’s what experts suggest investors should do on August 9:

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities

After rallying for four straight sessions and scaling new milestones, benchmark indices closed in the red as investors booked profit in Reliance Industries and other select blue-chip stocks. The RBI’s decision to keep the policy rates unchanged failed to woo investors as the status quo was already priced in the market.

Technically, on weekly charts, the Nifty formed a strong breakout formation, which indicates a further uptrend from current levels. We are of the view that the medium-term trend is bullish, buying on dips and selling on rallies would be the ideal strategy for positional traders.

The 16,150-16,050 level will be the strong support zone for the index. Trading above the same, the uptrend wave is likely to continue till 16,400-16,550. Below 16,050, breakout traders may prefer to exit long positions.

Chandan Taparia, Vice President | Analyst-Derivatives, Motilal Oswal Financial Services

The Nifty formed a Bearish candle or an Inside Bar on the daily scale but continued forming higher lows for the seventh session.

It came out of its trading range and formed a Bullish candle on the weekly scale, which bodes well for the bulls to start the next leg of the rally.

Now, the index has to hold above 16,200 to witness an up move towards 16,400 then 16,500, while on the downside, support is at 16,150 then 16,000 levels.

Gaurav Ratnaparkhi, Head of Technical Research, Sharekhan, BNP Paribas.

On August 5, the Nifty formed a Doji pattern while the next day it formed an Inside bar pattern. The overall structure shows that the brief pause is actually a healthy sign as it is allowing the overbought hourly momentum indicator to cool off and prepare for the next cycle on the upside.

Structurally, the minor consolidation is expected to be followed by the next leg up, which will take the Nifty to 16,400 in the short term with the medium-term target pegged at 16,800. On the other hand, a recent gap area—16,176-16,146—on the daily chart will provide a cushion for the index.

Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments

The Nifty took a breather on August 6, which is possibly due to the weekend knocking on the doors. The overall trend of the market continues to remain bullish and any dip or correction should be utilized to go long.

The short-term resistance, at 16,300, was crossed on August 5 and 6. If the index keeps above it, it will zoom to 16,500-16,600.

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