Markets Entering Wait and Watch Mode

Markets during the week inched higher with heavy weights, but this time midcap joined the rally and gave a phenomenal run-up. The earnings season has set in and numbers look encouraging when compared on a YoY basis (courtesy: corporate tax reduction). However, market seem to be little skeptic to move higher ahead of the Union Budget 2020. Signs of a conspicuous rally in the second rug stocks from various sectors largely signal that valuations of first line quality stocks are at rich levels. This is what is making these second-tier stocks move higher in a so called valuation catch up rally. This was certainly visible in the cement, auto and auto ancillary, financial and metal sectors all alike. It certainly indicates that this leg of Bull Run is now nearing exhaustion which should hopefully last till budget.

On domestic macros, inflation is now turning its head up which will further increase the woes of RBI to reduce repo rates any further. High inflation acts as a deterrent and therefore needs to be addressed. Expectation is that the much awaited budget will address these concerns by debottlenecking supply side restrictions in agriculture and manufacturing sector.

Event of the Week

As a matter of statistical record, almost 100% of the times, review petitions are dismissed by our Apex Court. The AGR episode also faced the same fate in Supreme Court. It has certainly created noise in the market which may not have any near term implications. Bharti Airtel's strength which was reflected in its stock prices was a big surprise to many. However, due to a very small public shareholding (Rs 191 Crs compared to Vodafone's Rs 803 Crs relatively), the stock price did not witness volatility. While Vodafone Idea's larger shareholder base caused insane volatility. Therefore, investors should generally invest in stocks that have relatively low public shareholdings.

Technical Outlook

Nifty50 is entering a sideways phase largely depicting an exhaustion on the higher side. Volumes and Velocity are muted giving an indication that the correction could be shallow but longer. In general, the markets are in over bought zone from a medium term perspective which can fall on any negative surprises. Traders can buy on decline with stop levels at 12200 in Nifty50. If market falls below 12200 it can trigger a major correction if and when it happens.

Nifty50 Update 17 January 2020

Expectations for the Week

Markets are likely to adjust adversely to the superficial US-Sino phase-1 trade deal wherein metals including steel stocks are likely to witness profit booking. Cement and infrastructure sectors too have rallied up sharply in anticipation of revival hopes from the Budget which are likely to see a correction. Autos will face renewed pressure given the structural slowdown in demand which is expected to last a little longer. Small industries like paper, shoe, rubber, sugar will witness volatile movement ahead of the Budget on expectation that import duty might increase in select categories. On the whole, markets will witness higher volatility but in terms of price, they might just move higher before budget. Nifty closed the week at 12352.35, up by 0.78%.


Results and Budget - Both will add to volatility

The barometer of greed and fear moved Mr. Market dramatically this week on the back of war rhetoric's, which later receded quickly. Nonetheless, traders and investors became jittery encompassing even the FPIs which took a pause on their buying for the week. However, the magic of SIP investing kept the inflow tap on for retail investors who thereby kept on buying at lower levels. SIP inflows for the month of December were near their highs at Rs 8400 Crs. Since the Budget is round the corner, small and midcap stocks are expected to see hyper activity on hopes and expectations. On the other hand, large caps have become too large for punts and therefore will majorly remain sideways. As usual agriculture and housing sector will see action and the Budget could provide some relief to these stressed sectors.

While the broader indices are picking up pace, large caps such as Bharti Airtel are enjoying from the funds raised in QIP this week. It received an encouraging response of 3x which surely speaks about the huge potential in the Telecom space in India and the long-term visibility for the company. Investors having huge appetite and capital can invest in telecom sector for a decadal time horizon.

Event of the Week

Government once again brought down the bottleneck in coal mining industry by allowing private companies' participation in coal auctions without stifling end user conditions. This will significantly boost investment in coal mining in India, currently the 4th largest in coal reserves and the 5th largest in coal production. Ancillary industries like mining equipment, explosives end user power industry will get a big boost by these initiatives. Such reforms when come in large numbers have the potential to kick start the economic engine.

Technical Outlook

Nifty50 is expected to move in the range of 300-400 points between 12000-12400 levels at least till budget. Market in general is not overbought and therefore has the potential to move higher. Wider participation of across the board stocks are expected to bring in a feel good factor in the market. Volatility is expected to increase which can lead to whipsaw losses for traders. Hence, buying on dips will be a good strategy for traders before the Budget with weekly lows as stops.

Nifty50 Update 10 January 2020

Expectations for the Week

Markets are heading for testing times given that the result season has set in and budget parlays too will have to be digested in weeks to come. Volatility is expected to increase, although prices are not expected to move much till Budget. However, sector specific rallies are likely to continue. Fertilizers, housing, infrastructure, cement sectors are likely to show large outperformance. In general, the market is heading higher and therefore investors should accumulate quality stocks through bottom-up approach with higher focus on mid-caps stocks. Nifty closed the week at 12256.8, up by 0.2%.



Midcaps to drive 2020

Markets moved at a snail pace this week giving no clear sign of the way forward. FIIs and DIIs too indicated a confused stance as there was no aggressive buying, however institutions have turned bullish on Infra, Power Metals, Realty and Cements probably due to coming budget sops. But amongst all this, midcaps finally started picking up pace and frontline stocks have started to show cracks. The mean reversion nature of Mr. Market is finally acting on the much talked about divergence in the returns of the past one year in mid-caps and large-caps. Infact, in certain sectors midcaps have shown decisive leadership which is what will spearhead the Street rally until the Union Budget in early February. To add to it, D-Street seems to have already priced in all the positives which further makes a good case for the large caps to correct. Investors can turn towards value picking from the midcaps space to ride through the rally.

Historically it has been observed that initial rally days in a New Year augurs well for the full year ahead. Green offshoots are visible among midcaps and small caps which will aid in setting the tone for 2020. Momentum should also pick up at the ground level given the timely boosts by the Government. The latest Rs 102 Lakh Crs infrastructure injection plan, though actual results will take a lot of time, will definitely aid in picking up growth among the debt laden beaten down space.

Event of the Week

December Auto sales numbers have been a mixed bag with two wheelers and commercial vehicles reporting heavy declines while passenger vehicles and tractors reported marginal dents. Seasonality, inventory management before the shift to BSVI in April, year-end shutdowns have all added to the auto woes and it seems that the pain is not over yet. Auto stocks despite having picked up from their lows will still take some more time before they actually pick up momentum for a sustained rally.

Technical Outlook

Nifty50 is showing signs of fatigue which can be observed in declining volumes and therefore a break of 12100 levels in Nifty50 can begin correction of the entire rise since October. However Mid Cap index has a different picture all together. It has clearly broken its downward sloping trendline which has most likely signaled a sustained rally in the making for the broader market. Buy on dips in the broader market should be the strategy for traders.

Nifty50 Update 03 January 2020

Nifty50 Update 03 January 2020

Expectations for the Week

The next week is expected to witness momentum from the midcap bulls while the large caps may experience correction. Certain sectors such as infrastructure, cement should continue to see action until the Budget. Pharma on the other hand, looks attractive however it seems that the inflow of smart money hasn't begun yet but soon traction can come. Whereas, the steel space is also showing strength as there is an increase in dispatches and a higher selling price which indicates that the sweet cyclical rally has more legs albeit with intermittent minor corrections. Investors can start cherry picking quality companies from midcaps and smallcap space on declines. Nifty50 closed the week at 12227, marginally down by 0.15%.