The Year could end with Profit booking

It was indeed a sunny week with benchmark indices touching lifetime highs making investors wonder in disbelief if the recent frenzy is justified. All heads turned towards Burger King’s IPO success and post listing circuit hits speaks only one thing, ‘Exuberance’ however what will follow later is a sharp correction but what is driving optimism? There are three broad tailwinds which have largely contributed to the rally. Firstly, the US Dollar Index tumbled below $90 for the first time in two years causing other emerging currencies to gain strength. Secondly, India’s CPI retail inflation moderated marginally to 6.93% in November from 7.61% in October which indirectly leaves more money in the hands of the common man and lastly the better than expected revival in earnings growth is driving D-Street’s rally. This was backed by global sentiments such as hopes of a post- Brexit trade deal and the US Government closing in on a $900 Bn Covid aid bill covering several stimulus checks to the US citizens. All these factors indicate that the bull rally in markets is here to stay albeit there will be bouts of profit booking and speed breakers before the start of the New Year.

It is not just equities but other asset classes such as commodities especially metals and oil are witnessing quite an up move. Bitcoin has also managed to hit another all-time high after crossing the $20000 mark. Amidst bouts of good news from all directions investors tend to forget that Mr. Market has a mind of his own and any sudden negative news be it the efficacy of vaccine or trade concerns between countries, could lead to a minor correction post the euphoria around equities. Investors investing for the longer horizon should continue buying on dips in a staggered manner as 2021 is expected to bring in a lot of cheer in the markets.

Event of the week

Fed Chairman Jerome Powell in this week’s FOMC meet categorically stated that stock prices are not necessarily high in comparison to how low the interest rates are. Hence, they maintained their stance to anchor interest rates at zero for years to come. The assertion to keep funneling cash into financial markets along with the explicit promise to continue the current bond-buying program until there is ‘substantial further progress’ in restoring full employment and hitting its 2% inflation target only signifies that there is bound to be abundance of money supply in the months to come leading to higher inflation. Japan too announced another stimulus package of $708Bn, therefore with major economies pumping in billions of dollars into the economy, it can be reasonably concluded that the buoyancy in the stock markets is here to stay and only a catastrophe can turn the tide.

Technical Outlook

Nifty50 closed another week with positive gains and the market breadth remained positive broadly throughout the week. Despite this, major largecap market movers such Reliance and the banking sector broadly remained muted. We continue to keep a cautiously bullish outlook and suggest traders to be light on the longs as the market is stretched in the short term. Any aggressive fresh buying should definitely be avoided at current levels. Immediate support for Nifty is now placed at 13450. Below 13450, we might get a confirmation for a brief profit-booking move on the downside which can then retest 13000 to 12800 zone.

Nifty50 Update 18 December 2020

Expectation for the week

Major event to look forward to in the coming week would be regarding any development on the vaccine front as good news could keep adding fuel to the already firing rally. Bulls have far surpassed the bears in the tussle between the two, however, mild profit booking on the way up cannot be completely ruled out. A couple of sectors such as defence and metals could remain in focus. Any update by the Government regarding the same could lead to good moves in these stocks. As regards PSU lenders, any signs of a weak response whilst their capital raising could lead to fractures in the newly-begun PSU rally. Investors and Traders are advised to ride the momentum with caution. Nifty50 closed the week at 13,760.5, up by 1.8%.

A Tug of War between Domestic and Foreign Investors Continue

The week further strengthened bulls with Nifty50 crossing 13500 levels for the first time in history. However, towards the latter half there was mild profit booking but this surely did not puncture the sixth consecutive weekly gains. It is quite fascinating to witness the contradictory stance put up by FPIs and DIIs since the past few months wherein the former is on a shopping spree while the latter continues selling. Monthly equity mutual funds statistics are witnessing an outflow for the 5th straight month in November as redemptions intensified on profit-booking in spite of benchmark indices scaling lifetime highs.

There are two-fold factors causing this intense selling by unitholders. Firstly, real estate which was the underdog since years is suddenly witnessing tremendous traction especially after the state government slashed stamp duty rates in order to invigorate demand into the crippled sector. Healthy discounts by developers have also kept the ball rolling as Indians are hitting the redemption button from debt and equity mutual funds and are investing in the physical real estate. The other reason for heavy redemption can be attributed to the sub-par returns from mutual fund schemes which has shifted the human psyche towards a DIY investing culture wherein investment into high beta and high alpha equities are done directly by the retail investors thereby keeping the tap dry for DIIs inflows. FPIs on the other hand have turned aggressive towards emerging economies because of a weakening dollar vis-à-vis other emerging currencies. This is leading to foreign investors shifting their focus to non-US assets and are investing in stocks, bonds and currencies of emerging economies on hopes that a vaccine will drive higher growth is such countries. The war between the two sides could continue for a few more weeks, until then investors should continue investing in equities albeit with caution as the bulls continue to remain in charge.

Event of the week

Be it crude or metal prices there is a massive influx of speculative funds from all corners but too much of anything isn’t good either. Crude oil has pierced the psychological price point of $50 a barrel which isn’t a cause of concern at the moment but if the prices multiply with this speed then the matter will get much worse as inflationary tendencies will start seeping into the real economy. The rush of inflows into metals and other commodities due to availability of cheap credit and excess liquidity by developed economies is setting a stage for inflation. Going ahead, as the second order effects of inflation set in, consumers would feel the pinch which can then disrupt their spending spree. Hopefully, OPEC+ would keep the crude oil prices in check and not weaken the bull party in the quarters to come.

Technical Outlook

Nifty 50 closed the week on a positive note with PSU banks and FMCG stocks taking charge while auto and metals remained the top underperformers. Indian markets have been outperforming their emerging markets peers. Though there is extreme optimism on the Street, but sooner or later this outperformance may take a back seat and we suggest traders to trade with caution as a profit-booking move across the equity class cannot be ruled out amid this extreme optimism. Support and resistance in the short term are now placed at 13250 and 13700.

Nifty50 Update 11 December 2020

Expectation for the week

The following week could hinge on US FOMC’s commentary which so far had hinted at keeping interest rates sub-zero levels in order to keep the money flowing. Any development on the same would be keenly awaited. Additionally, a consensus on the long-awaited stimulus deal would also weigh heavily on the US economy. Meanwhile in India, primary markets could witness heightened activity with a number of IPOs and stake sales lined up by the Government while the secondary market takes a breather. Investors can make use of these opportunities for IPO investing and at the same time wait for a correction to invest in equities with focus on undervalued quality businesses only. Nifty50 closed the week at 13,513.9, up by 1.9%.

The Collective Wisdom of Mr. Market

This was the fifth consecutive week that the benchmark index witnessed positive returns. However, there was a legit tussle between the bulls and the bears wherein repeated efforts to attain new highs were bogged down by the selling pressure from domestic institutions thereby ending the trade with mild gains. Mid and small caps were no less, they rallied by 2-4% each week for 5 consecutive weeks. The buoyancy can be majorly attributed to the catch-up rally being played by broader indices who are trying to match their industry bellwethers. Some of the credit for this upmove can also be given to the approval of Pfizer-BioNTech COVID-19 vaccine by the UK government which would congruently play a significant role in the global efforts to halt the pandemic. This excitement is leading to a near 9-month high in Brent Crude prices which bolstered hopes for a faster than expected demand recovery.

The party doesn’t end here since India’s GST collection remained above the Rs. 1-lakh-crore-mark for the second consecutive month as consumption picked up amid the festive season after easing of lockdown restrictions. Further, India managed to trim down its heavy trade deficit to USD 9.96 billion from $12.75 billion earlier and clogged better than expected GDP figure with a contraction of 7.5% vs a much higher contraction of 23.9% in the April-June quarter, justifying the recovery mode. Way back at the start of the pandemic India was at the bottom of any list amongst major economies in terms of macros but it has witnessed a turnaround and is now relatively well placed on the world map. No wonder the collective wisdom of Mr. Market was far ahead and eventually fundamental numbers started reflecting the same taking markets to justified record highs.

Event of the week

RBI maintained its status quo stance for the third consecutive monetary policy and revised GDP numbers upwards inline with expectations. Rising inflationary tendencies have been acknowledged but little seems to have been done in that direction. Infact, inflation is projected to cool down below 5% in H1 of FY22 which seems unlikely given the massive helicopter money by central banks across the world and run up in commodity prices such as crude and base metals. Inflation could remain elevated going forward given that import restrictions are in place to support our economy and this growth recipe could have unintended consequences of higher inflation, which will be a bigger animal to tame a few quarters down the line. However, in the near term this accommodative policy will support recovery in financial and capital markets alike.

Technical Outlook

Nifty 50 index closed the week on a positive note and most of the sectoral indices such as Nifty Metal and auto contributed positively. Though top index movers and several banking players have slowed down but the benchmark index continues to get support from other sectors such as Metals, Auto, Pharma and IT. The short-term trend continues to remain bullish, however, the index is trading at a rising channel resistance on the weekly chart. So traders are advised to maintain a bullish outlook but not to trade highly leveraged or aggressive bets. Sometime soon a mild dip can trigger a profit-taking move in markets. A break below 12900 can be taken as a caution signal for any short term decline.

Nifty50 Update 04 December 2020

Expectation for the week

Going ahead, the week may witness sectoral rotation with beaten down sectors picking up pace and witnessing traction. IT, FMCG and Pharma in general have entered into a long phase of consolidation and are unlikely to witness major buying atleast till the year end. Metals are expected to remain hot but vulnerable at current levels on the understanding that inflationary tendencies are increasing and stimulus from central banks may keep the sector in limelight, especially base metals and OMCs. Traders can take advantage of sectoral rotation and place their bets by initiating long positions in media & entertainment, metals and good quality PSUs. Investors on the other hand can accumulate FMCG, IT and Pharma stocks in a SIP format since they are consolidating currently. It is expected that any negative piece of news can take markets lower which may offer a buying opportunity for investors to pick up quality names. Nifty50 closed the week at 13,258.5, up by 2.2%.