DIIs - Smart buyers in this market dip

During the week bulls took over the baton from a directionless market and gave a power-packed performance. Benchmark indices managed to recover from the pain of last 3 weeks and continued their up-move majority of the week, defying grim economic growth prospects due to the second wave. Although investor sentiment at the ground level is more cautionary, Nifty50 managed to hold the reversal in trend confidently. On the contrary, this time DIIs came to our rescue and were net buyers of equities worth more than Rs. 9,900 Crs in April vs. last month signifying their faith in India Inc.’s ability to steer through these tiring times. In a never-ending battle of disagreement between FPIs and DIIs, international investors turned away from Indian equities after 6months of consistent net buying and sold equities worth over Rs. 8,500 Crs in the wake of intermittent hiccups due to the second wave. Therefore, it is essential to watch the movement of FPIs and DIIs as this week DIIs stole the show and gained dominance but as the USD/INR has cooled off from Rs. 75.5 to 74/$, FPIs could bring back their buying from India.

While the institutional players are busy deciding their stance in the markets, retail investors are taking into account the Q4 results and are betting on specific stocks. Compared to India, the US seems to be experiencing renewed confidence in their economy with progress in their vaccination drive, further stimulus news, recovery in economic activity and employment data. This week, the Fed continued to maintain interest rates at previous levels and showed confidence in recovery even though it is far from complete. Their clear message on continuing with their bond purchase programme will further add liquidity into the system, indirectly giving comfort to equities. This sentiment also trickled down to Indian markets which kept market sentiments high amidst concerns over rising cases. With the US market sustaining and hovering around life-time highs, Indian bourses are expected to remain buoyant. Investors can continue with their stock specific investments for the long term.

Event of the week

Fed Chairman’s dovish stance on interest rates continued to put pressure on the dollar while the rupee continued to rejoice for the 8th consecutive day. The gain in the rupee was a pleasant surprise given the Covid related situation in the country. Capital flows away from greenback and support from other Asian currencies was the major reason for an appreciation in our domestic currency this week. The current range of Rs. 74 to 75.5/$ reduces the need for any intervention from the RBI at the current moment which will bring about stability in the currency markets, eventually helping bulls on Dalal Street.

Technical Outlook

Nifty50 index closed positive for the week and rebounded from the previous resistance level that also coincides with the lower end of the rising channel, which might now act as resistance on the upside. The BankNifty index is also forming a similar kind of pattern with a long upper shadow on the weekly candle. Nifty needs to close above 15040 to keep the bullish momentum going. We suggest traders maintain a cautiously bearish outlook as long as Nifty trades below the rising trendline and keep strict stop loss below 14150 for long positions.

Nifty50 Update 30 April 2021

Expectations for the week

Indices in the following week are expected to be driven by dual factors - results and further restrictions on account of rising Covid cases. Volatility may also remain higher as markets are asymmetric in nature good news can move the needle to some extent but any bad news can turn to be extremely brutal given that we are trading at frothy valuations. The tug-of-war between the bulls and bears will continue in the next week too and there can be mild corrections in stocks which have already run up because of their results. Long term investors can continue with their investments in marquee names in a staggered manner. Nifty50 closed the week at 14631.10, up by 2.02%.

Economic recovery may face a speed breaker!

Markets have turned extremely volatile due to the rise in COVID-19 caseswhich is dampening quicker economic recovery prospects. India VIX also surged over 11% this week, indicating nervousness among investor participants. While the US indices witnessed profit booking on expectations of increased taxes on corporate and capital gains, India too faced pressure on equities as investors looked for safer avenues. Precious metals are one place which has started to see some momentum because of this uncertainty. Gold prices inched higher to hover near their 8-week highs as the dollar weakened. With the fear indicator creeping up, emerging economies such as ours was quick to witness FPIs pulling out money. FPIs have turned net sellers after 6-months of robust inflows and infact in April they have already pulled out a net amount of over Rs. 6,200 Crs.

Stock markets are a forward looking tool and given that majority of the stocks are already trading at frothier valuations, corrections irrespective of the reasons are bound to occur. This time’s reason is nothing but the second wave which is causing this weakness in broader markets. Various sectors are facing challenges for instance automobiles and consumer durables are witnessing erosion in demand due to closure of shops and showrooms, aviation industry which was about to turn the corner and recover fully from the pandemic, are again having to deal with declining travelers and rising ATF prices. The financial sector too can experience a delay in interest payments if things worsen. And during such uncertain times, it would be best to remember what Peter Lynch said: ‘Far more money has been lost by investors preparing for corrections or trying to anticipate corrections, than has been lost in corrections themselves.’ Therefore, investors are advised to stick to their equity allocation strategies and increase weight on every correction in quality stocks from the above mentioned sectors which are facing short term headwinds.

Event of the week

India’s life insurance industry registered impressive growth in new business premiums in Marchand ended the financial year on a high note, defying expectations of a de-growth in FY21.Top private insurers delivered a 56-120% APE growth along with stronger volumes largely due to the low base from last year.Margin trends have also been robust for companies aided by ahigher mix of protection and non-par savings products. Investors are suggested to continue investments in the insurance space as the top quality players are in it for the long haul and the underpenetrated nature of the industry will only bolster the topline going forward.

Technical Outlook

Nifty50 index closed negative on the weekly chart and is now consolidating at a crucial support level. The index is trading outside its major rising channel, so bulls need to protect the current support as any break below the same can trigger a bearish sentiment throughout the market. Many major stocks are showing signs of trend continuation on the upside and BankNifty index is also forming a sort of minor bottom around its short-term averages on a weekly timeframe. However, on a cautious note, other leading global indices which were outperforming India are now showing signs of a pullback. We suggest traders maintain a mild bullish to sideways bias on the market and keep tight stoploss just below the market support.

Nifty50 Update 23 April 2021

Expectations for the week

In the coming week, investors across the globe would keep an eye on theFOMC meeting for any change in interest rates and their future guidance on inflation. Any central rate change will trickle down to other interest rates, including foreign exchange rates and bond prices which may have a big impact on other emerging markets.Simultaneously, vaccination drives will pick up and it is expected that focus would shift back to growth, cyclical recovery and fundamentals.Next week being monthly expiry, traders areadvised to refrain from taking aggressive betsowing to probability of whipsaws due to it being a result heavy week. Nifty50 closed the week at 14341.35, down by 1.89%.

Markets amidst the second wave

Indian markets experienced high volatility during the week as VIX rose by 16.22% on Monday while the US continued to hit fresh highs despite concerns of a hike in corporate tax rate by the Biden government. Dow has continued to inch higher while Indian bourses have shown signs of weakness. In fact, Nifty registered its second-biggest single day fall in 2021 with heavy volumes. FPIs have also been net sellers so far this month as our country is struggling with the pace of infections. But this seems to be a healthy correction in the making on fears of a second wave of Covid-19. Just when everyone expected a stronger recovery in our economy, markets faltered due to vaccine issues and rising infections which resurfaced partial lockdowns in some states. However, once the vaccination drive starts in full-swing things should come back in control. Investors must therefore look at corrections as good portfolio allocation opportunities to rejig stocks and invest in quality companies.

Another macro data point which was adversely affected in the past week was the rupee that experienced depreciation till levels of INR 75.5/USD, which was last seen in June’2020. Rupee has also turned into Asia’s worst performing currency this quarter from the best last quarter and the reasons can be attributed to none other than the rising coronavirus cases and heightened unwinding of short dollar positions against the rupee. In order to keep the 10-Year G-Sec yield at or below 6 percent, RBI announced massive bond purchases to the tune of Rs. 1 trillion from the market which adds to the existing liquidity in the system and higher commodity prices too going ahead can lead to a current account deficit from the existing surplus situation. All these factors are causing a cloud of worry over the USD/INR pair. Currency traders should remain cautious till the existing headwinds fades off.

Event of the week

Despite much fanfare around Q4 results, large-cap IT players delivered mildly tepid earnings with softer deal winnings and modest sequential growth in revenues and margins. Although the pandemic triggered a new tech up-cycle, managements categorically indicated no room for further margin expansion as travel costs and wage hikes make their way back into the sector. With this and most positives priced in, markets took a more cautious stance around its growth sustenance and instead pushed prices downwards. However, from a broader point of view, there is a long runway of growth in IT companies and investors looking to invest currently for the long haul must not hesitate to accumulate on every dip.

Technical Outlook

Nifty closed negative for the week however, it formed a hammer candlestick pattern just around channel support and at previous support. The level of 14250 has now become a make or break level for the index. Any break below the current support will trigger a bearish sentiment across the broader markets while other global and emerging market indices are trading at all-time highs. We suggest traders maintain a cautiously bullish bias on the index and initiate long positions around the support by maintaining a strict stop loss just below the support. Resistance on the higher side is now placed at 14900.

Nifty50 Update 16 April 2021

Expectations for the week

Currently, major cities in India have announced restrictions and markets may continue to remain volatile till the uncertainty ends. With the ongoing result season, market participants should not read much into India Inc.’s numbers and should give more importance to the management commentary which will elaborate on future growth prospects amidst the second wave. However, this correction may turn out to be a blessing in disguise for the ones who felt left out in the past rally. Equity participants can keep their shopping list ready to enter into resilient stocks from the pharma, IT, FMCG sectors in a staggered manner. Nifty50 closed the week at 14617.85, down by 1.46%.

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%.