Tempting Rally Underway

Indian markets during the week rallied on the back of built up hopes for a possible fiscal stimulus from the Indian government. Global markets too rallied as many countries including emerging markets like Thailand, Malaysia have announced stimulus packages in the range of 10-15% of their GDP whereas developed countries like USA have provided stimulus to the economy of a similar magnitude; while India still awaits a second fiscal package. The upward move in Indian bourses is a globally orchestrated rally and if the Indian government does not live up to the expectation of huge stimulus, markets will be disappointed which will lead to lower price levels. The current fall and a subsequent bounce back is largely due to market assimilating the health aspect of coronavirus, nonetheless the financial implication is yet to be assessed, discounted not only in India but across the globe. A crisis similar to global financial crisis of 2008-09 catalyzed by subprime mortgages may unfold post lockdown, but on the positive side, central banks across the world, in order to boost liquidity have already reduced their interest rates to near zero levels and are preparing themselves to buy bonds worth trillions of dollars from the market to avoid 2008-09 type crises. This hope is pushing markets higher.

On the domestic front, Indian markets witnessed a bag full of optimism in the pharmaceutical sector which was one of the most neglected since half a decade. The Pharma index is up 50% this month, however, the optimism seems to be cooling off and prices are unwilling to continue their upward journey. Insipite of prices opening with a gap up, the rally is being sold out on the same day or the next day. Prices of companies like Strides Pharma, Lupin and Glenmark Pharma rallied momentarily on positives of plant/product clearances but the momentum did not last long. Hence, traders can go short on this sector and investors may avoid and wait for correction.

Event of the week

The central banking system of the US, The Federal Reserve, left its benchmark interest rate unchanged at a range of 0% to 0.25% and commented that it will use its tools and act as appropriate to support the economy. Further, remarks of Chair of the Federal Reserve Jeremy Powell highlighted that Fed would be patient and would not be in any hurry to move rates up, which cheered the US market. This careful status quo decision of Fed shows the commitment that they will support financial markets with their unlimited money power which is boosting global equity sentiments.

Technical Outlook

Nifty50 opened with a gap up on the last session with broader market participation forming a big bullish candle for the week. The index has rallied almost 30 percent from the lows, however the rally had been corrective in nature and not an impulse up wave. Going with the trend we maintain cautious outlook going ahead as the index is approaching towards cluster of 50% Fibonacci retracement and gap resistance around 9900-9950. Longs can be liquidated on weakness and fresh shorts can be initiated below 9500.

Nifty50 Update 30 April 2020

Expectation for the week

In the coming week, markets are expected to take major clues from any updates on lifting of lockdown which would assist the participants to gauge the ground level reality and set the course of direction. Markets are also expected to keep an eye on long awaited stimulus package as well as mutual fund investor's behavior on the inflows and outflows from D-Street. Volatility will remain higher in the coming week and a lot of volatility is expected in small and midcap stocks, although they will face selling pressure at higher levels. Investors should be in wait and watch mode and preserve cash by not aggressively investing at the current levels. As it is said that in bull market equity is king and in uncertain times cash is king. Investors can selectively book profits too in order to raise liquidity. Nifty50 closed the week at 9859.90, up by 7.7%.

Blockbuster Stimulus Unlikely

Markets during the week consolidated its position at higher levels in hopes that things might get better at the ground level. There is standstill in global markets currently after the recent rally; bonds and equities are entering in a wait and watch mode which can be seen from lower volatility. India VIX which is currently at 39-40 levels is significantly lower than highs of 83. Stock market to begin their next major move is likely to take clues from the ground level situation and effects social distancing will have on businesses and consumers. Since this is a global pandemic observing only Indian markets will unlikely help in forming any opinion for future course of action. International responses collectively will have to be kept in perspective to get clues as to what lies ahead of us during such uncertain times. However, the odds of a fall in the market is higher than a sustained uptick in prices.

Meanwhile in crude, there was a writing on the wall when OPEC cartel along with Russia brokered by America agreed to reduce crude oil production by only 10 million barrels/day. The optimal reduction should have been 30 million barrels/day atleast till global lockdown lasts, given that half of the globe is under lockdown, it is but natural that crude will go unconsumed which has led to a glut in the short run. Unless there are signs of economies moving back to normal, crude prices are likely to trade lower. The side effect of lower crude oil prices has not been factored in by the market participants – possibility of projects going haywire, oil economies getting into trouble and infra companies being affected in India are very high.

Event of the week

India witnessed its largest investment for minority stake by a technology firm. The global tech giant Facebook signed a binding agreement to purchase 9.99% equity stake in Jio Platform, betting on India's digital growth story. One of the many positives from the deal is the possibility of a fortune turning for India's unorganized sector which is expected to be brought together in a unified manner and in turn fight shoulder-to-shoulder against organized retail chains. This could possibly change the business model of many listed chains which are recently commanding high valuations.

Technical Outlook

Nifty50 on the weekly chart formed a Hanging man potentially a bearish candlestick pattern. Index continued to consolidate within the prior week's range while facing strong resistance at 9350 zone for most part of the week. The recent rally from the lows of 7500 has unfolded in the form of a rising wedge pattern, clearly evident on the daily time frame which is a bearish indication. A break below 9100 will confirm the rising wedge break down and the index may retest levels of 8800 on the downside. Traders can initiate shorts on break below 9100 in Nifty50.

Nifty50 Update 24 April 2020

Expectation for the week

Market is awaiting round two of an economic stimulus package from the government. Although given the limitations government has with its finances, not much is expected. But alteast some sectors (labour oriented) with deep trouble should expect some solace. Nonetheless, if the status quo is maintained by the government it would continue to create heightened pressures on NBFCs and financials in the economy. In developed countries, in normal times, governments collect around 50-60% of annual income in the name of social security and taxes and other taxes which in India is far lower. Therefore, Indian government may not have that wherewithal to roll out stimulus packages as grand as developed market. Hence, expectations have to be moderated in Indian context. Nonetheless, stock markets are expecting a blockbuster stimulus which is less likely and this could lead to another round of downturn in the stock prices. Investors are expected to be selective in picking stocks which are debt-free and have a sound business model. They should be accumulated in a staggered manner. Nifty50 closed the week at 9154.40, down by 1.2%.

Indian markets move in lockstep with global markets

Markets during the week remained choppy and traded higher on hopes that the Government and RBI would aid in reviving the economy and build market confidence by injecting liquidity and fiscal incentives. RBI has partly done this which lead markets higher by the close of the week. In addition to such stimulus, the combined scientific effort to invent a possible drug for COVID-19, which may come sooner than expected, ignited a positive market sentiment. It is expected that the domestic market will continue to reflect the global mood given that combating COIVD-19 is a global effort and therefore the mood will continue to change depending on the situation. However, as a word of caution it would be pertinent to note that although markets are rising, volumes along with open interest are at yearly lows and investors still appear to be wary.

FIIs/ FPIs also seem to be under worry as INR is continuously losing its value and they are therefore selectively selling, even though with lesser intensity, whereas domestic investors are still cautious and unwilling to put money given that markets have already increased by 24% from their lows. Pharma, speciality chemicals along with FMCG sectors have outperformed given that they may be the least impacted due to lockdown. At the same time, autos and select NBFCs tried to recover but they still face resistance at higher levels due to earnings worry.

Event of the week

RBI's second tranche of infusion was rather conservative as the Governor followed a piecemeal approach to infuse liquidity. But for the time being, major concerns were addressed as real estate and NBFC sectors have received relief, NBFCs and other financial institutions have liquidity coming in from the RBI's TLTRO 2.0 and there is relief on the NPA recognition and stressed asset reclassification for Banks. A 25bps reduction in the fixed reverse repo rate will encourage banks to lend more and improve liquidity in the system. The current measures and further openness to provide further relief if the situation worsens is a big relief in these lockdown conditions.

Technical Outlook

Nifty50 formed a hammer pattern on weekly chart indicating subtle weakness in the market. Such hammer patterns are bullish when made near bottoms and bearish when made after rallies. Nifty50 will face stiff resistance at 9300 which is a 38% retracement of the entire fall. Any weakness below 9000 will begin another round of selling in the market. Going ahead market is likely to consolidate while facing selling pressure at higher levels. Selling on weakness is advisable for traders with weekly highs as stops.

Nifty50 Update 17 April 2020

Expectation for the week

Currently, a major part of the world population is under lockdown and it is expected that markets may not take any material direction till the lockdown ends. The moment lockdown ends, market would start reacting to the ground reality. In the coming weeks, corporates are expected to announce their quarterly earnings performance and it would be advisable to investors not to make any estimates or guesstimates basis this quarterly performance. Thus, assessing Q4FY20 numbers would be an exercise in hindsight as what is lying ahead of us is unknown and uncertain. Hence, this earning season would generate volatility but no meaningful price direction. Investors are advised to continue with their SIPs which would aid in bringing their average costs lower. Nifty50 closed the week at 9266.75, up by 1.7%.

Markets mirroring Global Indices despite No Economic Stimulus

Markets opened this week with bulls marching with all their might. Indian indices jumped higher taking significant cues from its global peers, mainly from the US bourses. The confidence returned with reduction in number of daily Covid cases in some countries. Sentiments are changing from ultra-pessimistic to mildly pessimistic which is driving markets higher. However, one must not forget the trillions of dollars of economic stimulus packages in the US, Japan and other economies that have boosted confidence to a large extent. But contrary to that, Indian bourses have defied gravity by merely reacting to the global peers as India is still working on the second tranche of economic package to combat the COVID-19 effects - first being only $22.50Bn stimulus. It is also pertinent to note that barring the cautionary commentary by management of one of the fastest growing NBFCs on various scenarios of lockdown, markets still went higher implying the worst is discounted in the current scenario.

In general, it seems that once the lockdown is lifted markets will initiate taking notice of the ground reality and react accordingly as the aftereffects of the lockdown will start to emerge only then. And this may help the bears to take charge once again for the possible second round of fall in the markets. However, till then emulating global indices would be the general trend for our markets.

Event of the week

The Pharma sector was trending this week as the Government approved partial export of two key drugs to fight novel coronavirus. Taking cues, pharma index was up 35 % during the week. As this sector remained undervalued for the longest period of time, this week's rally has brought the index to comparatively fair valuations. However, investors should not jump the gun and should stay away from this space for now as pharma is a crowded trade and situations can change very quickly depending on the US FDA approvals or if a foreign player starts manufacturing the same drug. Due to the event driven nature of the sector, investors should wait. However, traders, can place contra bets in this counter.

Technical Outlook

Nifty formed bullish candlestick during the week with broader market participation, positive market breadth and closed almost 20% off recent lows. However, we assume the ongoing rally is a bear market rally and is least likely to be sustainable. In fact, the market may witness strong resistance at the cluster of Fibonacci retracement of 38% at 9300-9400 Nifty50 levels. Going ahead, we have a mildly positive outlook for the next week with the support and resistance placed at 7900 and 9400 respectively.

Nifty50 Update 09 April 2020

Expectation for the week

The COVID-19 situation remains fluid and uncertainty still looms on the possible economic impact of the outbreak. However, in the coming week it is expected that market will be guided by global sentiments with sudden gap ups or gap downs. Any negative surprises with respect to the lockdown will also have an impact on bourses. Additionally, it would be sound for investors and traders to keep a watchful eye on India VIX. If India VIX falls below 30 levels, it would be a good starting point to go long and accumulate stocks, nonetheless buying on dips is advisable. Nifty50 closed the week at 9111.90, up by 3.6%.

Another Short Bounceback Awaited in April

Markets continued to succumb to the bears this week post a short bounce back the week earlier. Such dead cat bounces shouldn't be mistaken as beginning of bull market rallies; yet there are indications that markets are expected to witness another short-term bounce in the coming weeks. Firstly, the selling pressure has continued although to a lesser extent which shows that FPIs have reduced their quantum of selling. India VIX which is the fear barometer is also showing signs of fear ebbing resulting into receding volatility. It had touched levels of 83 towards the end of March and since then has been declining to sub 60 levels. Open interest is also down by 50%-60% in Nifty and stock futures which is a good sign that the market is light in terms of leverage. Moreover, commodities too haven't witnessed panic selling recently and have sort of stabilized. All these point to the markets having priced in most of the negatives as of now. US equities too are showing a reduced correlation between the stock price decline and the heightening of Covid-19 positive cases. This indicates that sanity is slowly prevailing and markets have assumed that it will take a while before the covid19 cases peak driving markets into a wait and watch mode.

On the other hand, the much talked about crude is witnessing sudden spikes amidst the oversupply and production cut talks between the US, Russia and Saudis. The price war between the two oil producers is indeed going to decide the fate of crude as the lockdown has impacted demand tremendously with barrels of crude piling up having no space for storage. Decline in crude oil has led to first wicket down in US, Whiting Petroleum Corp has filed for bankruptcy proceedings. If there is no conclusion between the waring nations, price of crude can induce system wide risks in the economies worldwide.

Event of the week

March auto numbers have plummeted given the lockdown impact; two-wheelers saw a decline of about 45-55%, passenger vehicles fell 50-60% and commercial vehicles were down by 80-90% on a YoY basis. It is expected that the sales numbers for the month of April 2020 may be even worse, courtesy lockdown. However, the recent correction in the sector seems to have already factored in the slowdown in performance. Hope for a scrappage policy that may be around the corner when the government announces an economic package in the near term will immensely aid this sector. The auto sector is not for the faint hearted, those with risk appetite should only consider.

Technical Outlook

Nifty index, after opening negative, traded in a comparatively narrow range of 8130 to 8680 and continued to consolidate. Indian markets, in line with global indices, is trying to stabilize for now in spite of the escalating health risks worldwide. The recent sell-off caused significant price damage in a very short period of time and hence the market is likely to oscillate in a broad range of 1000 points. Markets are likely to witness a period of time correction going ahead with a mild positive to sideways movement for a week or two. We suggest traders to go long if Nifty50 sustains above 8000 levels keeping that level as stop loss for long positions.

Nifty50 Update 03 April 2020

Expectation for the week

It can reasonably be expected that the Government will announce a second round of economic relief package before the lock down is lifted by mid-April. However, in anticipation of such package markets are likely to witness bounces. Pharmaceuticals look resilient and seems to be little affected by the lock down, traders can take long positions in this sector. Financials may rebound after the relief package is announced so one can wait and watch for the time being. As an asset allocation strategy going for quality corporate bonds with yields of around 12% or higher would be a good option in these stressful times. Investors are advised to continue their SIPs which would help them take advantage of the irrationally beaten down prices. Stay home and Stay safe! Nifty50 closed the week at 8083.80, down by 6.7%.