Liquidity Keeps the Market Afloat

Market during the week witnessed many gap-up openings indicating exuberance in the overall sentiment. Small and midcap indices led the market optimism making the rally more broad based which was aided by huge FPI inflows. For the month of August, FPI equity inflows have reached their highest levels of nearly USD 6 billion which happens to be the highest monthly number in history. However, it would be pertinent to note that all inflows are not through secondary markets, a major part have come in through FPOs and QIPs. On the contrary, DIIs have remained bearish and have continuously pressed the sell button in August. In the midst of the optimism on D-Street, corporates are on a capital raising spree which is causing a lot of liquidity to be sucked out from the system. US Fed’s policy intention to keep interest rates at rock-bottom and keep system afflux with liquidity for an extended period of time even if the inflationary pressure kicks in, is a bullish signal for all asset classes. This happens to be an important indication to the world that a great deal of liquidity for longer periods of time will inflate all asset classes including gold, metals and off course equities. Only after January 2021 when new US President comes into power, there can be alterations to this stance, till then financial markets will be awash with liquidity which eventually has potential to fuel the rally even higher.

However, India is tied with its own issues since the past few weeks. RBI has begun a special operation twist in order to cool down the yield in the bond market which was inching higher on back of inflationary tendencies in the economy. Inflation, therefore, seems to be a reality going ahead which will atleast cap further reduction in interest rates in India and hopefully across the world. Going ahead this pandemic will bring a bigger challenge for central banks across the world on how to juggle inflation and interest rates.

Event of the week

In order to keep the ball rolling towards making India ‘Atmanirbhar Bharat’, the Government permitted upto 74% FDI in defense manufacturing sector through the automatic route, in order to promote indigenous manufacturing and development of defense weapons. Although the intention of the bureaucrats was there on paper since a long time but it made progress only this week, which will open a window of big opportunities for corporates to enter into the defense manufacturing space. These government decisions towards defense may turn out to be a Y2K like opportunity similar to the IT boom back in 2000.

Technical Outlook

Nifty50 index formed a big bullish candle after witnessing strong participation from the banking space which closed with gains of almost 10 percent. The rally in the banking index has charged the bulls enough and has led Nifty50 to surpass the brief resistance at 11530. The index now might be heading up to the zone of 11850, but still Nifty is overbought and is trading at the upper end of the channel/resistance drawn by connecting April and July highs. So, traders need to be careful about this as the potential upside might be limited. The immediate support is now placed at 11200; maintain a bullish outlook until this is not violated.

Nifty50 Update 28 August 2020

Expectation for the week

Globalization, to a great extent, has interlinked various economies and financial markets across the globe and the current pandemic has accentuated the effects of intertwining of economies. Indian bourses, not being an exception, are and would take cues from global markets especially the US market going ahead. In the coming week, Indian investors should closely watch the monthly auto sales numbers for August which might broadly act as a proxy for the health of our ailing economy, to an extent. In general, markets are in a state wherein any material movement is unlikely at Index levels whereas stocks/sectors specific rotation will be very high. Traders are advised to ride the rally and investors are recommended to stay put in equities and keep surplus liquidity to take advantage of sharp corrections as and when they come. Nifty50 closed the week at 11647.6, up by 2.4%.

Time for Bulls to be Vigilant

During the week, market continued its momentum in small and midcap stocks while the large caps stocks consolidated ahead of global clues. Indian markets are largely trying to mirror international indices from a directional perspective. Countries such as Taiwan which had negligible impact of COVID-19 are racing to new highs and developed countries like the UK are still 20-22% lower from their yearly highs on account of local issues and dampened demand revival. Further, it can be inferred that in countries like US, Japan etc. where government revival packages were colossal ($1-2Tn), stock markets have nearly touched their yearly highs whereas in countries where the stimulus packages were comparatively petty, the market is seen to be lagging and down nearly 18-20% from their yearly highs. On the contrary, Indian bourses danced to the tune of global optimism and managed to dodge the petty economic stimulus package ($22.50Bn) when compared to developed nations. This optimism in domestic bourses without the onset of structured economic revival policies succinctly suggests that disparity in risk-reward is diminishing for the bulls and investors need to remain vigilant by taking the upbeat sentiments with a pinch of salt.

Domestic institutions seem to have played smartly and are currently on a selling spree. They friskily bought during March-April lows and have now been frantically selling in August when markets are in an upbeat mode which indicates their cautious outlook for Indian bourses. Conversely, panicked FPIs were seen selling majorly in March-April and have slowly started investing since then. Ahh! FOMO or Recency bias for FPIs??

Event of the week

Bulls are aiding the government to raise small ticket amounts in the form of FPOs. The current optimism in the market is a blessing in disguise for the cash-strapped government to raise money in order to reignite the economic engine. The current rally in PSU stocks might witness a pause given that government is willing to raise money through FPOs in IRCTC and Hindustan Aeronautics. A few more FPOs could also hit D-Street in order to raise funds. However, it is advisable that investors remain cautious while associating with any PSUs given that their omnipresent supply overhang makes them vastly unfavorable.

Technical Outlook

Nifty50 closed on a positive note but experienced highly volatile gap ups and downs during the week. The index is now trading at a confluence zone of trendline resistance drawn by connecting previous pivotal lows and the 78.6 percent Fibonacci retracement of all-time highs to the bottom of 7500. This is a crucial juncture with no participation from index movers and the Banking sector already struggling with its own set of problems and underperformance. The short term trend is still intact and bullish but we believe only a limited upside is left and maintain a cautious view. Immediate support for Nifty is now placed at 11100.

Nifty50 Update 21 August 2020

Expectation for the week

Going ahead, Mr. Market will take cues from profound theatrics happening in the US. Given that presidential elections in the US are exactly 73 days away, markets across the globe will hold on to important news from the presidential campaigns. India Inc.'s result season is over and as expected Q1FY21 was largely considered a one-off dark quarter. Markets reacted maturely but now it is keeping an eye out for the upcoming quarters which may really show the impact of COVID-19 on its sectors and stocks. But that is still some time away wherein markets might resort back to aggression looking at Q2 numbers. Investors are advised to remain on the sidelines and may look to book profits. However, momentum in small & midcap stocks is still strong but gives no promise to continue in the future. It is time to be cautious and have decent liquidity on a portfolio level. Nifty50 closed the week at 11371.60, up by 1.7%.

Time to cautiously ride this 'topsy-turvy' market?

Market during the week showed exuberance which was visible in small cap and mid cap indices which outperformed Nifty50 by around 2% -2.5%. Commensurate with this, it seems natural that corporates will knock the door of secondary markets to raise money, indeed there has been huge amounts of capital being raised through QIPs and this is just the start. PSU banks too have entered the league and are planning to raise capital from the secondary market which is a rare phenomenon. Empirical evidence suggests that so much optimism combined with a capital raising spree is an extreme which could be a danger zone for the bulls. In addition to this, stocks in F&O ban category too have increased which advocates danger going ahead. Hence, investors should remain cautious and ideally should not participate as these euphoric times are merely triggered by liquidity.

Tracking mutual fund inflows for market signals has also become little topsy-turvy. Historically, during market panics, mutual funds used to see outflows in the equity segment and inflows during buoyancy. Courtesy COVID-19, this trend seems to have been abruptly distorted! Retail investors are seen taking money off the table from equity mutual funds and are routing monies to debt instruments. In a surprising contrast, at the same time FPIs have done record purchases in the month of August 2020 setting in a tug of war between Indian retail investors and FPIs. It appears that retail investors have become smarter by taking money out from equity mutual funds. But only time will tell who will win this tug of war. India Inc.'s Q2FY21 results will be the litmus test for visibility of corporate earnings and if the momentum sustains, the market will sail to new highs, otherwise we may experience sharp correction going ahead, the odds of a correction are higher.

Event of the week

Most sought after precious metals, gold and silver witnessed massive sell-off during the week on the back of precipitous increase in helicopter money. Central banks and governments too are aggressively favoring fresh stimulus to boost the economy which happens to be an ideal set up for gold bulls and inspite all such optimism, precious metals corrected by 5-15%. Such eventualities in equities too cannot be ruled out. Amidst optimism, markets may have registered tops and therefore both trading and investing now calls for appropriate risk management and a disciplined approach.

Technical Outlook

Nifty50 after opening with a minor gap on the upside, traded in a narrow range throughout the week and closed in red led by banks. The short term trend for the market has turned down and a retest of 10,900 cannot be ruled out. Hence investors are suggested to remain cautious. On the upside resistance is placed at 11,380, however a downside break of 10,900 will mark an uptrend reversal and sharp correction will begin thereafter.

Nifty50 Update 14 August 2020

Expectation for the week

Frontline stocks are expected to maintain low profile but small and midcap stocks might continue their final bout of upmoves. Sectoral rotation can be expected in sectors and stocks where a smart run-up was registered during the week and money may ride in search for underperforming sectors and stocks. It is expected that realty, NBFCs, infrastructure sectors may witness buying and profit booking may emerge in sectors like pharma, IT, cement, FMCG. One needs to keep a stock specific approach; traders and investors are advised to continue their cautious stock picking approach. Nifty50 closed the week at 11,178.4, down by 0.3%.

Ride the rally so long as it continues!

Markets during the week witnessed some profit booking but it again bounced back inline with global sentiments. Global markets are hovering near their 2020 highs, Nifty50 too is trying to imitate this trend inspite of massive increase in COVID-19 cases and lackluster economic activity. Given the inherent forward-looking persona of Mr. Market, it has very well discounted events 6 to 9 months ahead of time. And this could ceremoniously be the major reason why markets seem to be in a super bullish mood, since it has already priced in that ground level economic activities would normalize in the next 6-9 months. It can be concluded that correction in the market could be witnessed only on the back of any major negative event or if there emerges a wide disconnect between market-wide expectations of recovery and actual ground level economic revival. Otherwise so far so good! Markets are expected to continue their momentum inspite of all adversities. Investors are advised to remain cautiously bullish around these times especially when massive amounts are being raised from secondary markets.

Surprisingly, Axis Bank's board kept the QIP floor price higher than the market price and even in such an uncertain scenario it had witnessed a decent response. HDFC would also be successful in raising Rs. 14,000 Crs without any major dent on secondary markets. The way QIP pricing is undertaken and the way stocks are reacting on the secondary market suggests that there is a gargantuan amount of liquidity waiting in the system and markets still have the strength to move higher. Investors are advised to ride the rally so long as it continues.

Event of the week

Commodities have started attracting a plethora of global attention given the fact that a lot of helicopter money is floating across the world. This superfluous liquidity is being channelized not only in precious metals like gold and silver but in other metals and commodities too. Given the swift one-way rally in gold, one should be cautious in the near-term but in the long term, prices are expected to inch upwards for the next few quarters. However, too much of bullishness in commodities may kick in inflationary pressure which again could be negative in the longer term. It is advised to allocate some portion of your portfolio to gold atleast keeping next 3-5 years in horizon.

Technical Outlook

Nifty50 index continued to trade in the range of 10950 to 11300 for the third straight week and has now taken kind of a pause. The BankNifty index remained relatively weak while mid and small cap indices outperformed. As the rally in heavyweights has taken a pause amidst weakness in banking majors, a consolidation is possible before the next up leg. We maintain a cautiously bullish outlook for the near term unless Nifty breaks below 10850 Traders are advised to follow a buy on dips approach with 10850 as strict stop loss.

Nifty50 Update 07 August 2020

Expectation for the week

World's largest economy, the US is expected to finalize a second round of stimulus package in the coming week for the American people to fight economic fallout from the COVID-19 pandemic. This move is expected to lift overall sentiment of the US market and in turn markets across the globe. Accordingly, domestic markets are likely to mimic on stimulus clues and sentiments are likely to be positive. Markets are likely to consolidate and move higher. Currently, domestic markets might seem immune to the global unrest which is at an all-time high given the aftermath of lockdown and economic distress. India may not be impacted for the time being but a possible fall out on the economy still remains an overhang. Bleak quarterly performance of India Inc. is failing to create any significant market trend. Investors are advised to ride with the rally so long as it continues. Nifty50 closed the week at 11,214.0, up by 1.3%.