What is your view on the Nifty for Thursday 21st of July? Do you expect the sharp rally of Wednesday to continue?

On 20-July, the Nifty closed in the positive gaining nearly 181 points. The advance / decline ratio was also positive at 34:16. There was instituitonla buying and a lot of short covering. However, the rupee weakened beyond 80/$ on several occasions during the day, but settled exactly at 79.98/$, largely on account of the RBI intervening to defend the rupee.

With the government announcing the reduction of windfall tax on diesel, ATF and oil extraction and scrapping of windfall tax on diesel, it seeks to be happy days again for oil stocks. Even IT saw short covering on Wednesday. Major gainers were ONGC, TECHM, TCS, HCL Tech and Reliance. Major losers were HDFC Life, M&M, Sun Pharma and Eicher Motors.

FPI buying appeared to returned out of the blue as global investors have stayed positive on the Indian markets in the last few days. On Wednesday, FPIs net bought equities worth Rs.1,781 crore while domestic funds and LIC sold stocks worth Rs.230 crore. After a long gap, the FPIs are buying in the current week, but the FOMC meet could hold the key.

In terms of global market trends, the Dow Jones was up 48 points while the NASDAQ was up 185 points. There has been an all-round technology stocks rally led by Netflix which positively surprised the street with its outlook. Europe was in the negative while SGX Nifty is trading flat with losses of just about 5 points in early trades on Thursday.

Regarding the outlook, I would still suggest caution. There has been short covering and a brief bout of buying by FPIs. For now, all eyes would be focussed on the US Fed, which now threatens to be ultra-hawkish. Fed rates will anyways touch 2.5% with a 75 bps hike, which is the neutral rate. Anything more hawkish like 100 bps could spook markets.