Markets Turning Anxious Over Second Wave

Markets in the first trading week of the new fiscal remained choppy but there was a hint of optimism as Nifty tried to mirror global indices, especially the US, which managed to hit new life-time highs majority of the week. Equity market participants have started betting on excess savings, deficit spending and the most vital, the inoculation drive which is the theme navigating us through any surprises thrown by the pandemic. India’s central bank continued with its accommodative policy and kept repo-rates unchanged in an attempt to soothe concerns over rising Covid-19 cases. The GDP growth forecast for FY22 is also maintained at 10.5% which shows that the policy was balanced and a bit more dovish than expected given the uncertainty arising from the resurgence of infections. Although the policy lacked aggressiveness, there was only this much the RBI could do considering the circumstances.

The major clincher which appealed to the equity investor community was the G-Sec Acquisition Programme (G-SAP 1.0) of Rs. 1 Lakh Cr for this quarter which would enable to flatten the yield curve to some extent. This announcement reiterated the Governor’s commitment to keep liquidity conditions comfortable until the inflation is under control. An immediate impact was visible in the bond yields which witnessed a dip and rupee saw its first biggest single day fall in 20 months. It was only this bond purchase programme’s implication which raised prospects of rupee flooding the system and a potential inflation risk thereafter, both of which dented sentiment toward the USD/INR currency pair. Investors must not read too much into this times policy and continue investing in stocks in a staggered manner in every corrective fall.

Event of the week

Automakers ended the previous fiscal on a positive note with robust sales, especially after the pandemic hit shores last March. While YoY growth was attributable to a strong demand trend and a low base from Mar’20, MoM trend was robust because of continued traction especially in rural markets. Exports gave a positive push in the 4-wheeler and 2-wheeler segments and demand for CV steadily recovered due to increased thrust in infra, construction & mining. It seems April could again face difficulties like the previous year because of partial lockdowns in some statesdisrupting sales as dealerships have been shut. While the performance so far has been positive, investors need to be vigilant and watch how autos perform in the upcoming months to judge the trend in this sector.

Technical Outlook

Nifty50 index closed flat for the week after consolidating in a broader range. After testing the lower end of the channel, bulls and bears are in a strong fight for control in the short term. The market breadth has also remained mix in the week gone by. Many sectoral indices are now forming a minor bottom kind of pattern after being oversold in the short term and global indices are showing a positive performance. Nifty is likely to break on the upside as it is already trading at the upper end of the range. Traders are advised to maintain a bullish bias while keeping a tight stoploss below the immediate support of 14550.

Nifty50 Update 09 April 2021

Expectations for the week

In the coming weeks, markets will be bombarded with quarterly earnings from India Inc. which begins with the IT space. A decent show is expected from a majority of sectors but market participants should be wary as stock prices have run up too far too soon and most of the positives have already been discounted in the price. It would be advisable to specifically gauge management commentary to decode growth outlook for specific stocks. Investors are suggested to stay put and look for opportunities to increase weightage in quality players especially from the IT, FMCG and pharma sectors. Nifty50 closed the week at 14834.85, down by 0.22%.

FY20-21 – The Year Markets beat Covid!

Markets concluded FY2021 on a positive note and this week too bourses showed high volatility, just like the rollercoaster year we have had. This fiscal wasn’t short of surprises and it was marked by extreme pessimism to extreme optimism. Investors were baffled by Nifty50’s swing from lows of 7,511 in Mar’20 to an all-time high of 15,431 in less than a year. Globally, this swift recovery can be attributed to the dedicated collaborative efforts by a host of moving variables. From trillions of dollars as stimulus from governments across the globe to slashing of interest rates by central bankers, both factors synergistically bolstered ground level demand and led to gradual economic recovery. Not to forget the timely initiatives by the Indian government in terms of PLI incentives to kick-start domestic production which fuelled confidence. An added advantage was from FPIs who from May’20 have been ardent believers in India’s growth story and have been continuously adding inflows into our markets. This combined effort led to the sharp rebound in the markets globally as well as domestically.

This year has indeed taught us a few lessons which mainly revolve around the fact that “Price is King” and equity markets always behave in its own mysterious way. When investors thought we were in a deep bear market back in Mar’20, indices made a bottom and shot up to new highs. Also, when market participants assume that nothing can go wrong, equity markets always manage to spring a surprise. Hence, it would be logical to be aware of the possible downside risks which can come our way this new year. There could be high possibility that it may take longer than expected to return to normalcy given the fears of a new strain and second wave of Covid in the country. Also, if the money supply tightens in the US with an increase in interest rates to curb inflationary pressures, money might be routed towards the US instead of India. Lastly, post the COVID-19 recovery phase, geopolitical risks in the form of prolonged US-China tensions can come back to focus. But investors must continue to remain invested even though FY22 can be a volatile year with Covid’s low base having an impact for the first half of the year.

Event of the week

USD/INR pair witnessed strength this week especially after taking support at around $72.27/INR levels. The dollar hit a fresh one year high this week because of the massive infrastructure stimulus being announced and the accelerated vaccination drive against Covid. The optimism led to a jump in bond yields which also aided the dollar push and drove the USD/INR pair higher. Broadly speaking the rupee was well supported over recent months by huge foreign investor inflows into Indian equities and a further rise in yields can shift the inflows towards the US. Further depreciation of the rupee can also accelerate a vicious circle of outflows which will be negative for equities.

Technical Outlook

Nifty 50 index closed positive for the week, however, the market is lacking decisiveness in its direction as Nifty after bouncing from its channel support is still contained within Tuesday's trading range and this week's candle is also within the previous week's range. Our market is actually witnessing a volatility squeeze while the trend in other emerging indices hints at a consolidation breakout on the upside. We suggest traders maintain a mildly bullish outlook. Immediate support and resistance are now placed at 14260 and 14880 respectively.

Nifty50 Update 01 April 2021

Expectations for the week

The key event to look forward to in the coming week would be the RBI’s MPC meet. It is likely that the RBI continues with its accommodative stance given the uncertainty around the intensity of a second wave. The Governor’s comments on overall economic scenario will dominate the bourses in the week followed by the result season which is expected to commence for this quarter. Fiscal year 2020-21 taught us a great lesson of staying invested through the thick and thins of the market and we advise investors to keep a 5-7 years’ investment horizon to beat the volatility that the coming year will bring us. Nifty50 closed the week at 14867.35, up by 2.48%.