Thank you, Mr Trump! Your dollar comment has ensured Nifty’s bottom remains capped

We do not discard the geopolitical tensions building up and we also take into account the very short-term technical indicators that suggest continuation of range-bound corrective activities in equity markets.

However, at this juncture, we examine certain inter-market technical facts that explain why corrective downsides in Indian equities will remain limited and why the overall strength will remain intact.

A study of recent fund flows in the US has caste strong doubts over the US reflation story and this has drawn over $7 billion to US bond funds in the first quarter of 2017.



This has caused US 10-year treasury bond prices to shoot up. As a result, we have seen US 10-year bond yields spiral down to 2.24 from its recent high of 2.62.

The benchmark US 10-year bond yield has always shared an inverse relationship with the Nifty50. Any drop in US yields has a positive impact on fund flows to emerging markets, in general, and the Nifty50 in particular.

Further, comments from US President Donald Trump on the dollar being stronger than required and his asking the FOMC to keep rates lower have further weakened the dollar and kept bond yields under check.

All of the above factors have contributed to the current weakness in the US dollar, a rise in US bond prices and consistent decline in yields. All this has positively impacted fund flows to emerging markets, in general, and Indian equities, in particular. This is expected to keep any corrective downsides limited and overall uptrend in the equity market intact.

(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)