Markets, technically in reversal mode

This week beginning May 21^st could see domestic stock markets being impacted by rise in petroleum prices, movement of crude oil and its impact on inflation and trade deficit. Besides earnings from blue chips such as SBI and Cipla are also to be announced this week. The impact of the Karnataka political outcome will be short-lived. The last week was marked by the political developments in Karnataka, which saw fall of the three-day-old BJP government on Saturday minutes before the scheduled trust vote.  The immediate concern to the market will be the impact of crude at $80 on inflation, interest rate, exchange rate and GDP growth rate. If crude continues to rise and cross $85 expect markets to react negatively and some sell-offs to happen.

Also observed will be the Federal Open Market Committee (FOMC) minutes and the US jobs data to get some cues on interest rate hike trajectory. Stock specific action may be seen in view of corporate results scheduled for this week. Other major earnings this week are from Dr Reddy, Jet Airways, Tata Motors and Gail.

In terms of investments, provisional figures from the stock exchanges showed that foreign institutional investors sold scrips worth Rs. 1,496.79 crore during the trade week ended May 18. Foreign portfolio investors (FPIs) divested equities worth Rs. 799.88 crore, or $117.63 million as per the data of National Securities Depository (NSDL).

Technical charts showed the National Stock Exchange's (NSE) Nifty50 in a downtrend. With the Nifty ending lower for the fourth consecutive session and closing below the short term trend reversal levels of 10,630 points, the underlying uptrend has reversed. The coming week could see further downsides towards 10,514 points and lower. On the upside bounces, 10,692 points-level can offer resistance. Consequently, the barometer 30-scrip Sensitive Index (Sensex) of the BSE declined by 687.49 points or 1.93 per cent to 34,848.30 points. Similarly, the wider NSE Nifty50 edged-lower. It ended at 10,596.40 points -- down 210.1 points or 1.94 per cent -- from its previous close.

Experts believe the Indian economy is in the beginning of an economic recovery, but there are thick headwinds for domestic equity markets going ahead and another phase of correction is likely. Approaching elections, elevated bond yields, emerging market currency weakness and deteriorating current account is likely to keep Indian markets under check. The Nifty is likely to trade near the 10,000 level in the short term and as we approach FY19 end.