Virus will correct the Valuations

Markets during the week experienced a massive decline in bourses in sync with its global peers. Panic guided the bourses and the entire world is blaming coronavirus for the erosion of wealth. However, when looked back in time several instances point out to an entirely different scenario. A century ago in 1918, an epidemic of a similar grade Spanish flu, created a deadly turmoil in the US taking lives of 20-50 million people and affecting around one third of the planet's population. But despite this pandemic being the deadliest in history, Dow Jones Index steadily rose throughout the year from 76 to 81. Isn't this surprising? Actually not, because right before the outbreak the US Index had heavily corrected because of the catastrophic impact of the World War I. As the valuations were already reasonable, there was little room for the markets to correct further, which is exactly why despite the flu markets went up.

Cut to now, India is following a similar yet opposite situation and an analogy can be drawn from the past. Indian bourses have been trading around higher valuations and hence a correction was needed to align the markets as per the mean reversion theory. Hence, this week's fall is a valuation play with coronavirus as the scapegoat. The frothy valuations needed the markets to correct and hence investors should slowly and steadily pick reasonably valued quality stocks in a SIP format.

Event of the week

This week's fall can be attributed to the FIIs who have been aggressively removing flows out of the country. On the contrary, the surprising fact is that DIIs have been net buyers this week till Thursday. While Coronavirus has managed to propel FIIs to pull the trigger, Gold, the safest class of asset, is on the journey of making new highs. This possibly imparts that globally investors have taken a back seat to try hands in such a volatile market.

Technical Outlook

After two weeks of indecisive movement, Nifty formed a big bearish candle caused by negative global sentiments on account of coronavirus. On weekly charts, Nifty and BankNifty indices are still trading within an upward sloping channel and on monthly charts, this fall seems like a mean reverting opportunity for investors keeping a long-term view. Short term traders should remain on the sidelines as the VIX is extremely high. The next immediate support level is 11100.

Nifty50 Update 28 February 2020

Expectation for the week

In the forthcoming week, all eyes would be glued on the most awaited SBI Cards IPO and RITES OFS by the Government of India. No matter the outcome, markets would broadly be driven by the virus and global sentiment. While it is impossible as well as futile to predict the pangs of the market, it is wise to rely on the wisdom of Sir John Templeton during this bloodbath: 'The time of maximum pessimism is the best time to Buy, and the time of maximum optimism is the best time to Sell.' Hence, investors should cherry pick quality stocks in a staggered manner as every dip seems to be a good buying opportunity. Nifty closed the week at 11201.75, down by 7.3%.

Market Needs More Time To Correct

Market during the week whipsawed after initial weakness due to Coronavirus. But it later bounced back at the close of the week keeping aside all fears of a slowdown on a global health emergency front. It is heard that China is slowly reducing curbs and hopefully the economy is likely to come back to normalcy. But nonetheless risk does remain. IPOs have started to buzz again given that markets are stabilizing post the earnings season, digesting the budget proposals, one good thing is that markets have not witnessed significant institutional selling in the past one month. This is giving a ray of hope to the companies coming out with IPOs namely NSDL, SBI Cards, Barbeque Nation etc. all racing up hopefully before the financial year end to garner approximately 10,000-11,000K Crs. Markets will not be surprised if the Government too jumps in with FPOs for its battalion of listed PSUs. Broadly, some amount of revival in the economy is expected after the massive slowdown and liquidity crises of the last year.

Due to the AGR outcome, telecom was the talk of the town since the past few weeks. Even mutual funds succumbed in the race of herd mentality and raised their holding to 5year highs of around 9% from approximately 3.5% two years ago. Telecom is one space where no other institutional investor has increased the stake but mutual funds have. Going ahead, telecoms may take a long time to deliver returns given the burden of huge debt, spectrum payments along with mandatory investment in 5G.

Event of the week

Crude oil has bounced and increased by nearly 8% from its pessimistic level of Rs3,500/bbl which indicates that fear of the virus (covid19) may be receding, if we use crude oil as a thermometer to assess the impact of the epidemic on overall markets. On the contrary, gold has crossed $1,600 per ounce which may be understood as a contra yardstick for equities. Gold bulls have suddenly become risk averse for reasons best known to them. This certainly calls for caution for global equity markets, if gold is to be considered as a barometer to measure risk.

Technical Outlook

Nifty on weekly chart has formed a dragonfly Doji candlestick pattern due to aggressive selling at the start of the week, but later buyers were able to absorb the selling and push the prices up. The rally was largely led by heavy weights with healthy volume and positive market breadth. Market continued to hold above 50 and 100 DMA indicating inherent strength. This is the second consecutive week market posted an indecisive close. The market is now constrained within a range of 11900 to 12250, and the break of either side is likely to decide the trend. Going ahead market is likely to trade with consolidation to bullish bias.

Nifty50 Update 20 February 2020

Expectation for the week

Next week, market is likely to gather evidence from global economy before deciding its journey. Given the virus woes subsiding to an extent, markets are likely to react positively in the coming week unless a black swan event hits the Street. Investors can look at accumulating private banks and cement stocks as Shree Cement's entry in Nifty50 certainly makes a good case for this sector to gain strength in terms of market weight. While, autos would be a stay away sector. Investors are also advised to book profits in the specialty chemical space specifically the stocks that have risen solely on the shoulder of coronavirus. Nifty50 closed the week at 12080.85, down by 0.27%.

Year Ending Woes To Keep Market Subdued

Markets remained buoyant this week and infact rose higher which indicates that the coronavirus fears are factored in to an extent. However, any further escalation of the issue could have a negative impact on the bourses in the near future. Calm is returning after the dual storm from the Budget and the "mini-Budget" - the last Monetary Policy for FY20. Inspite of concerns clouding D-Street in the past couple of weeks, FIIs and DIIs have continued to remain net buyers in Indian equities this week which portrays the renewed confidence from the marquee investors on India's growth story. SIP flows again crossed the Rs. 8000 Crs mark for the 14th consecutive month in January. The Government indeed has a big hand in reviving confidence despite the retail inflation touching highs of 7.59% in January, the highest since 2014 and the monthly IIP contractions continuing to portray a gloomy growth picture. To sum it all, the economy is currently in the mending phase which will start showing green offshoots soon.

But at the same time there are other global pressures that could impact the market and increase volatility. India, being China's second largest trade partner could experience supplier disruptions due to coronavirus. Sectors which are most impacted are electrical machinery, metals especially iron and steel, auto and raw materials as a large chunk is imported from China. Textiles and specialty chemical players on the other hand are rejoicing as global companies are resorting to India for these products.

Event of the week

The Q3FY20 results were a mixed bag with consumption and financials clogging a disappointing performance. In the auto space, M&HCVs are still struggling to find a firm footing whereas PVs have started improving slowly. Cement and specialty chemical companies have surprised the Street. The recent Supreme Court ruling on AGR dues is a big jolt to Vodafone and Airtel. Only time will tell how they are able to repay the dues. But, given the fundraising done by Bharti Airtel, it seems that the company would remain ironclad from this judgment, Vodafone however would suffer tremendously.

Technical Outlook

After posting a big bullish candle last week, nifty formed a long-legged Doji pattern this week, indicating tough fight among bulls and bears. In fact, Nifty index is facing stiff resistance at 12200 zone since last three days and formed a three inside down bearish candlestick pattern, right at the resistance zone. Going ahead nifty is likely to trade negative. The broader market breadth also remained negative for the last trading day as well as on weekly basis. Traders may sell on rally.

Nifty50 Update 14 February 2020

Expectation for the week

With the fag end of the result season and no key events in the near future, markets would largely take cues from the domino effect of forthcoming challenges due to Coronavirus. Given the current uptrend of markets, it would be no surprise to see a slew of IPOs such as IRFC, SBI Cards, Burger King etc. in the coming weeks. This would entail a rush of inflows in the primary market which would be a positive for retail investors as they get an opportunity to invest in good companies. Broadly markets could be dilly dallying as it soaks in the developments from last couple of weeks. Investors are advised to hunt for quality stocks in this ongoing correction. Nifty50 closed the week almost flat at 12113.45, up by 0.12%.

Markets will now find its own level - major events over

Markets during the week witnessed a historic change in sentiment post the longest budget speech. The high/low volatility totaling 7.5% without any abnormal buying and selling from institutions demonstrated the fact that Budget Days have largely become trading dens, giving intraday traders a big trading advantage. The volatility took its toll on ITI Ltd's FPO which eventually had to be withdrawn due to negative sentiments. As luck would have it, if the government had waited for a few more days, the FPO might have successfully sailed through, such was the impact of Union Budget on the markets. The Budget didn't provide any short-term boosters, however, from a long-term perspective the Budget has a lot of ingredients to drive economic growth. The dual stimulus - first the Budget followed by the RBI provided various measures to stimulate the broader economy which will bring results. Hence, the market witnessed a reversal from a 2.5% fall on the Budget day to an equal gain negating the losses during the week.

The Government along with RBI have been dedicatedly seen revitalizing India's growth story with all the due measures it can right since October last year. First, the Government raised the bar by giving meaningful tax cuts to the corporates and now the abolishment of DDT from the corporates. This will enable companies to utilize the free cash flows for further capex. Moreover, renewed stimulus in the infrastructure sector, real estate, support to MSMEs and housing finance companies are all efforts to revive growth whilst ensuring that inflation remains within the target range.

Event of the week

The retail community hasn't taken the TDS on dividend and the lower tax rates without claiming deductions well, thus spoiling the mood of the common man. Government's target to raise Rs. 2.10 Lakh Crs through disinvestment route would be an uphill task if such negative sentiments persist. Although, Government is firing all its cylinders to strengthen Corporate India but same level of leniency seems elusive for individual investors. Further, NRIs of India too have been disappointed through various amended provisions in the Budget. Hopefully, the larger good should prevail in long-term but short-term it has failed to create a Wow effect.

Technical Outlook

Nifty50 has rebounded sharply during the week but it was just short of making an engulfing bull candle in the weekly time frame chart. Therefore, the current rally will face selling pressure on the higher side. Nifty50 is likely to face resistance at 12200. Volumes were low, therefore the odds of correction continuing seems high. Bulls will have to wait little longer to see new highs again.

Nifty50 Update 07 February 2020

Expectation for the week

Now since the budget, RBI policy & major corporate results are behind us, Indian bourses will henceforth try to adjust and assimilate the reality. Before making any meaningful strides, markets will absorb how these policy decisions have impacted corporates' underlying performance. Going ahead, the overhang of Corona virus will largely drive the mood of the stocks in the short term. Volatility will reduce substantially and markets may enter a wait and watch mode with some amount of profit booking in certain pockets. Investors are advised to wait and let the markets settle before allocating any meaningful savings to direct equities. Nifty50 closed the week at 12086.4, up by 3.7%.