Right said Fed; Indian Nifty above 5900

The Indian equity market continued its third consecutive week of recovery after Federal Reserve Chairman Ben Bernanke didn't signal any changes in the bond-buying program, which has kept long-term interest rates low and encouraged more borrowing and spending.

Bernanke reserved his comments for July 17-19 when he will address the House of Representatives Financial Services Committee and Senate Banking Committee. Meanwhile, the minutes from the Fed's June meeting showed many of the 12 Fed voting officials saying they need to see further improvement in the job market before mulling winding down the stimulus program.

For the week, the benchmark indices surged 1% each adding to its tally of 6.5% in three weeks.

At the start of the week weak China data impacted sentiment. China’s exports and imports unexpectedly declined in June, a sign that weakness in global and domestic demand will intensify the slowdown. Overseas shipments fell 3.1% YoY while imports declined 0.7% after a 0.3% drop in May. However, Bernanke’s statement revived sentiment.

On the domestic front, the rupee added to the cheer by appreciating above the 60 per dollar mark after hitting a record all-time low of 61.21.

In economic news, it was a mixed week of cues. Gross direct tax collections for the April-June period rose 11.52% at Rs. 1.23 trillion as against Rs. 1.11 trillion in the same period last year. Gross corporate tax collection showed an increase of 7.82% at Rs. 76.12bn as against Rs. 70.59bn year-on-year.

Output in eight key infrastructure industries slowed to an annual 2.3% in May as against 2.4% in April dampened by weak infrastructure sector output.

IndusInd Bank kick-started the FY14 earnings season by reporting a 42% year-on-year spike in its Q1 net profit at Rs. 3.35bn. A robust growth in other income and net interest income aided the better-than-expected net profit. During the quarter, other income surged 48% YoY to Rs. 4.71bn while NII increased 40% to Rs. 6.8bn.

What strategy should investors adopt next week? Hadrien Mendonca, Technical Analyst at IIFL, advises investors to take money off the table after the sharp upswing. "Going forward, one should build fresh long positions only if the Nifty manages to close above the 5,940 mark, which is the neckline of the an inverted head and shoulder pattern."

The important cues to watch for next week is inflation and import and export data for the month of June. In global cues, investors will keep a watch out for the US Federal Reserve Beige Book report, which includes a summary and analysis of current economic conditions in each district and sector.