Lights, camera and caution

Domestic market investors were cautious ahead of the RBI policy meet last week. But the surprise cut by the central bank helped markets erase all losses. Also, improved global conditions supported the markets.

The outlook is still weak and marginal uptick can be expected with resistance at 8050 and 8100. Support for Nifty lies at 7871 and 7823, movements below this level can bring Nifty below 7600 levels. Investors can sell Nifty 8100 call and can sell 7500 put together because of narrow movement this week.

Positives
Following a broad based recovery, the infrastructure sector picked up in August. The core sector index, which constitutes eight sectors, rose 2.6 per cent in August as compared to 1.1 per cent in the previous month.

The eight industries included in the index are steel, cement, natural gas, fertilizer, coal, crude oil, refinery products and electricity. In the sectors, seven sectors posted positive growth, where the natural gas production bounced back to the positive zone after years of decline and steel was the only sector to post negative growth.

The core sector index has 38 per cent weight in IIP data which is due in October 12. Fitch ratings have lowered the country's growth rate because of an average monsoon.

The global rating agency estimated the GDP growth of India for the current fiscal to 7.5 per cent from 7.8 per cent but hinted at the ability to grow 8 per cent next fiscal on a push for reforms. It said that India is the fastest growing BRIC this year. It projected China to grow at 6.8 per cent in 2015, 6.3 per cent in 2016 and 5.5 per cent in 2017.

Rate
The major trigger for the Indian markets last week was RBI's monetary policy where the central bank sprung a major surprise. The inflation forecast for January 2016 was lowered to 5.8 per cent and RBI acknowledged that inflation target of 6 per cent is likely to be achieved this year and they will aim for an inflation of around 5 per cent by end of March 2017, now.

RBI also lowered GDP projections for FY 2015-16 to 7.4 per cent from the earlier estimate of 7.6 per cent. Figures from India's manufacturing sector showed that the sector had slipped to a seven month low on the back of sluggish order inflow. The Nikkei Manufacturing PMI - a composite monthly indicator of manufacturing performance stood at 51.2 in September against 52.3 in August.

A figure above 50 represents expansion while below shows contraction. But the growth prospects remained encouraging for the July- September quarter which may provide a stronger contribution to GDP than the previous quarter.

Concerns
Early last week, profit booking kept markets under pressure. Chinese concerns ruled. In Europe, the economy's confidence unexpectedly rose in September as industrial and services sectors sentiment improved. Then there was the inflation rate in the region, which turned negative in September for the first time in six months.

On the US front, the economy added just 142,000 jobs last month, far short of the estimated 205,000 jobs. The Labour Department also trimmed its estimates for jobs growth in July and August. Markit services PMI, composite PMI, retail PMI and Retail sales will be the major triggers in the Euro Zone area this week.

In the Japanese markets, Nikkei services PMI, current account and Bank of Japan's interest rate decision will be in focus. For Indian markets, major data is Nikkei services PMI and manufacturing Production data. Automobile stocks will be in focus along with Pharma stocks. Cement, cycle and scooty manufacturing stocks will be in focus this week.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).