Latest Indian Share Market Updates & News in Jan 2021

Leveraged Bets Out Before B-Day!

During the week, markets witnessed the much awaited sharp correction with Nifty taking the lead while the global peers followed. The correction also coincided with the monthly expiry which acted as a double whammy leading to sharp bruises in the elevated stock prices. In all likelihood, timid hands would have already moved out before the big Budget Day. Given the market is light, a blockbuster budget might re-ignite animal spirits in the bourses and keep the buoyancy intact. However, if the budget isn’t well received by D-Street then the bruises will also be sharp as currently volumes are low due tough margin requirements. Zooming out, it is quite likely that market as a whole is at the top end of its valuation metrics in the short term and therefore the corrective phase is likely to continue either by time or price for a little longer than what the street might expect, inspite of budget buoyancy if any that may arise.

Moving on to the much-awaited vehicle scrappage policy which has finally been approved by the Ministry of Road Transport and Highways. However, the approval brought with itself a negative surprise ahead of the budget since it is only applicable to government vehicles older than 15 years, which squashed the industry bulls who were eagerly waiting for a demand revival due to a scrappage policy largely for commercial vehicles. This could also be one of the reasons for the correction in the market suggesting that the government may have limited course of action to boost the economy through fiscal measures. All eyes are therefore set on the nitty-gritties of the budget wherein a boost in domestic consumption could be the central theme and top priority to aid India on its path to growth and recovery.

Event of the week

Declaring that the battle against coronavirus isn’t over, Fed Chairman Jerome Powell pledged to keep the monetary valve wide open to aid the pandemic-stricken economy. Leaving its key overnight interest rate near zero levels, he made no change to the monthly bond purchases of at least $80 billion in Treasury bonds and $40 billion in mortgage-backed securities. With the flush of liquidity being injected in the system, inflationary tendencies are creeping in and will accelerate in future, which shouldn’t be ignored as it would ultimately drive risky asset classes such as equity, commodities and real assets higher. As a consequence, it may also lead to weakening of the dollar which would hurt the developed economies and improve inflows to the developing economies.

Technical Outlook

Nifty50 index posted a big bearish candle after a long period, in fact, this week witnessed meaningful selling on a closing basis after a total of twelve weeks. As markets remain deviated from the mean a little longer than usual, we may see a meaningful dip and a time correction or both in the short term going ahead. All sectoral indices closed negative and Nifty IT, Energy and Realty remained the top losers. A sustained move below 13900 will confirm the bearish scenario as immediate support and resistance now lies at 13700 and 13900 respectively. Traders should stay on the sidelines as the Budget Day could witness massive volatility and random knee-jerk reactions.

Expectation for the week

Markets are expected to remain volatile the coming week due to a number speculations doing the rounds, one of them being a one lakh crore rupee national bank for infrastructure financing. However, there are way too many assumptions and presumptions on the Budget and eventually the question remains if the government willingly contributes in terms of infrastructure spending and long-term capex to revive the slouching growth or it just creates noise around growth by simply tweaking fiscal policies. Markets would be deeply disappointed if the government chooses the latter. But if the former is selected, there could be cheeriness and bourses could even march to the recent highs. Investors are therefore advised to selectively buy at lower levels and not take rash knee-jerk news-based decision Nifty50 closed the week at 13634.6, down by 5.13%.

Fundamentals Are Now Catching Up

Market during the week witnessed a roller coaster ride mirroring international markets especially the US market. Post one of the most contentious elections in recent history, the most awaited inaugural ceremony of POTUS Joe Biden kept the mood of the markets elevated and quarterly earnings performance from India Inc. too corroborated in keeping markets cheerful but the weight of high valuation and bullish sentiments led to profit booking at higher levels. Infact, corporate numbers have been exceptional which has paved the way for flattening the valuation curve which otherwise was very steep. The magnitude of steepness was on account of prices which ran ahead of fundamentals and currently fundamentals are merely catching up, proof being the Q3 numbers. It is important to understand phases of the bull market as per The Dow Theory. Here, Phase-I represents the revival of confidence in the future course of business; Phase-II is characterized by the response of stock prices to the ground-level improvement in corporate earnings performance and Phase-III depicts the rampant speculation and inflation - a period when stocks advance on mere hopes and expectations. As stated earlier, currently, domestic bourses are somewhere between the Phase-I and Phase-II. After Phase II is over, a long drawn correction will lay the foundation for a final push to newer highs. But in the near term, it is time to be cautious and book profits.

On interpreting ground level updates in a comprehensive way, it seems we are heading for a massive inflationary price rise. Prices of basic industrial raw materials like iron & steel, copper and everything from plastic to fiber have inched up anywhere between 50-100%. This abrupt rise in prices may impact profitability of many intermediary companies. However, those whose business models have integrated value chains are anticipated to perform far better than expectations. In addition, industrial houses with large and heavy manufacturing capabilities would have already written down their assets long back and hence they will benefit from newer players who will have to put up capex at current prices which will come at a far higher fixed cost. This may eventually bode well with the old and existing industrial houses who will churn higher profit margins and in turn have better profitability than new ones. Capital-intensive players in sectors such as cement, metal & mining, forging, heavy industrial machinery and even hotels are likely to witness increased profitability with rising inflation in the economy. All in all, this bull market may see participation from all industries this time which also indicates that this could certainly be a secular bull run than a mere cyclical one from a long term perspective.

Event of the week

Results from this week itself reiterate the point that fundamentals are indeed catching up with the stock prices. Case in point being Bajaj Auto which posted its highest-ever quarterly profit and revenue on account of exports and improved domestic sales aided by festive push and demand for personal mobility during the pandemic. Not only this, Asian Paints too witnessed a 62% YoY jump in bottomline while its topline zoomed 25% and margin improved to 26.3% from 21.9% a year ago. The paint-maker too posted its highest-ever revenue, profit and EBITDA in Q3. A number of other companies from various sectors also beat expectations and surprised market participants. The prices which had moved ahead of fundamentals are now catching up.

Technical Outlook

Nifty50 closed the week on a negative note after a weak opening. The index made an outside bar and it seems like it has started to feel the turbulence, as it is already trading in an overbought zone. The week remained highly volatile with a bullish tilt which could continue unless Nifty breaks below the 14200 mark which is its immediate support in the short term. A break below the same can trigger a huge profit-booking move to 13100 on the downside. Considering time period of the up moves it would be interesting to see that previous phase and the current phase coincides which hints that a bigger correction could play out this time around. Hence, traders are suggested to be light on the long side.

Expectation for the week

The next week would be filled with expectations from the Union Budget which could be the key trigger to set the mood in February. Q3 results will continue to drive volatility and enable some reshuffling in sectors. Additionally, one should be watchful of the events surrounding Beijing (China) given that the authorities have initiated mass testing and imposed a strict lockdown after surge in cases due to the new coronavirus strain. Given the enormous participation from China in global trade – the resurgence of new strain may lead to uncertainty. And markets hate uncertainty! Investors are advised to remain watchful of these major events and restrain from aggressively chipping in new monies. Nifty50 closed the week at 14371.9, down by 0.4%.

Markets to Remain Volatile Before B-Day

Markets during the week slowed down its velocity as more or less all positive clues have been discounted. Despite the new US President-elect announcing a fresh round of stimulus of $1.9Tn, US markets were unamused. The massive liquidity in the system is the only reason driving markets higher, but at the same time, the liquidity being sucked out through IPOs is very small in comparison to the proportion of helicopter money. The Government is all set to aggressively offload their shareholdings through primary and secondary markets where they possess holdings beyond 51%. SAIL’s OFS was a real surprise post its surreal 3x returns in 9 months and the exchequer jumped on this opportunity to trim its stake given the rising demand. Markets should be well prepared as other listed Government companies might follow the same footsteps. Hence going forward, PSUs might witness selling pressure as and when the supply deepens which will keep a tight rein on the prices. IPOs of LIC and other big ticket players are yet to see the glory of D-Street, however, it seems absolutely clear that the Government is willing to sell on every rise.

More on IPOs, a plethora of companies are expected to enter Indian bourses in the first quarter of this year commencing with IRFC and Indigo Paints. This may further create a euphoria for more IPOs to come in the market which will eventually stop the music of liquidity. However, it would be pertinent to understand that the rate at which developed economies are pursuing quantitative easing is quite substantial when compared to the rate at which IPOs are hitting markets. Therefore, it can be said that the liquidity will be in our system for some more time but nonetheless, the beginning is well underway wherein the financial markets’ liquidity is being channelized in the real economy by IPOs and FPOs. Investors are advised to subscribe to these IPOs in the current environment of liquidity gush and encash profits as and when the opportunity strikes. A trader mentality would work better rather than holding on to these stocks for the long term.

Event of the week

The four IT biggies delivered blockbuster earnings for the third quarter despite the furloughs usually seen in Q3. Infosys outperformed both TCS and Wipro on the revenue growth front. Sequential revenue growth in constant currency terms for Infosys grew at 6.6% vs. TCS’ 4.1%, Wipro’s 3.4% and HCL Tech’s 3.6%. Though stock prices of the IT pack appear expensive currently but with TCS and Infosys gaining market share and management’s upbeat commentary of a multi-year technology upgrade cycle plan going ahead, earnings momentum might support the stock price for a reasonable period of time. Investors may look to remain invested in the IT sector for the long haul.

Technical Outlook

Nifty50 closed the week on a positive note after making a new lifetime high, however, the index witnessed a narrow trading range and formed a bearish Shooting Star candlestick pattern on the weekly chart. The market is overstretched on the upside, so this can cause a short-term dip or weakness in the near term. Infact, S&P 500 index which has been dictating the trend in global equity indices is now trading negative for the week and other emerging markets such as Taiwan (TAIEX) and South Korea (KOSPI) are also trading with a sideways to mild negative bias. A break below 14430 can trigger a profit-booking move in Nifty. Immediate support and resistance in the short term are now placed at 14430 and 14640 respectively and a break on either side will lead to a directional move in the short term.

Expectation for the week

Going ahead, markets are expected to witness unusual hype and hysteria on hopes and expectations of Union Budget which will drive the volatility even higher. At an aggregate level, large cap players might not register substantial moves but there could be a lot of buzz in small and midcaps. Market participants should consider this as a trading opportunity and not for investment for the long term at current price points. Medium term investment opportunities are still available in pockets like metals, commodities and cyclicals, although they have turned risky. Nifty50 closed the week at 14433.7, up by 0.6%.

Bitcoin at $40,000, what about equity markets?

During the week, Mr. Market continued its march towards life-time highs with consistent support from small and midcap constituents. It would be reasonable to conclude that this exuberance is likely to continue till the Budget-day. Just as equities are the talk of town there is one other asset class which has zoomed above USD 40,000 for the first time this week. The rally in Bitcoin has been making all market participants FOMO but this surreal jump in cryptocurrencies does signal that our world is heading towards a major inflationary price increase across real (tangible) assets. It is probable that down the line as inflation rises people’s liquid assets will start eroding in value and there will be a decline in purchasing power, and hence there is a need for alternative real assets such as the Bitcoin. The phenomena of inflationary tendencies to kick in and lead to erosion in purchasing power could last for atleast 3-5 years. And in this period, one can look to generate disproportionate returns by investing in companies whose focus is on metals and mining, industrial, cement and real estate. The current consensus continues to bet on FMCG, Pharma and IT performing well in the future but it may not hold good if such inflationary tendencies gain traction. If the movement in Bitcoin is any precursor for equity markets then one may see a massive rally in metals, mining and real estate stocks. With an uncertain event such as the pandemic disrupting many businesses, some traditional principles of investing are now certainly demanding a relook. Long years of underperformance in cyclical, industrial and capital intensive industries may come out as winners for the next few years. Investors are therefore advised to bet on these themes in the equity market.

Event of the week

BankNifty is trading close to its lifetime highs and it was buzzing this week on Q3 business updates announced by several private sector lenders. With the opening of major cities and our economy on its path to recovery, banks are also making headways to regain operations just like the pre-Covid days. And HDFC Bank reported a deposit growth of 19.10% but the weakest advance growth of 15.60% YoY in 16 quarters. Given the moderation in loan growth in this bellwether banking player, it would be safe to say that this sector is yet to reach its peak in terms of business growth, which is a positive sign for investors as any dip could pose as good opportunities to enter these financials.

Technical Outlook

Nifty50 index closed the week on a positive note as the market remained unaffected in the short term and continues to surge higher. This week almost all sectoral indices closed in green except FMCG while metals, IT and media continued to lead. Nifty now seems to be heading towards 14500 as it is lacking any significant negative events. On the downside 13950 has been established as an immediate support and a break of the same may trigger a profit-booking move in the short term. The market continues to remain overbought in the short-term and we maintain a cautiously bullish outlook unless the market breaks below 13950.

Expectation for the week

Going ahead Indian bourses will be bombarded with quarterly earnings from India Inc., starting with major IT players. Whilst a good show is expected from a majority of sectors, market participants should be wary as stock prices have run up to a great extent and most of the positives have already been discounted in the price. A decent strategy for traders would be to wait and watch for the market’s reaction on the results and then see the momentum to judge the trade. Investors are suggested to stay put and look for opportunities to increase weightage in quality players from the metals and mining, industrials, cement and real estate sectors. Nifty50 closed the week at 14347.3, up by 2.3%.

SAMCO family wishes you a very Happy New Year!

2021 Will Be Earnings Catch-Up Year!

Mr. Market during the week and in last nine months has been rising relentlessly, climbing the wall of worry reflecting upon ground level economy punctured by pandemic, reduced consumer demand, job losses, business model disruption, bankruptcies, etc. Inspite of all these markets have kept the spirit and ascended higher truly reflecting what lies ahead. It is expected that year 2021 would obliterate all the negative rhetoric around mounting worries and ground level economy may be seen returning to normalcy. But the stock market may not show the same kind of buoyancy given that market has already ran ahead of its fundamentals. Therefore, year 2021 may be the period where one would see stock market and real economy aligning with each other.

The year is likely to have a good start atleast in the initial couple of months wherein union budget, US new government policy initiative and overall vaccine efficacy would be the key driving factors which will keep the sentiments elevated and markets’ bullish. Primary markets too are expected to remain hyperactive during this period. Investors are advised to primarily stick to good quality large names rather than opting for second quality stocks on pretext of lower valuation or catch-up rally.

Event of the week

The week ended with successful debut of Antony Waste Handling Cell which zoomed 36.5% over the issue price of Rs. 315 apiece upon listing. Such positive response on listing would definitely pull in more business houses to consider IPOs in the market and more issuers would be excited to pile up the line of IPOs in Q1CY21. The long-awaited line of IPOs would largely benefit the overall economy which would impart risk capital to equip entrepreneurs and businesses to drive real economic growth. However, one may note that in the short-run this IPO rush would suck away liquidity from the secondary markets and mellow down the bulls’ power.

Technical Outlook

Nifty50 index closed another week on a positive note with a new lifetime high and almost all the sectoral indices contributed positively to the benchmark indices. PSU Bank and realty indices remained the top leaders. The market is continuing to trend higher as bulls are not considering loosening their grip on the short term trend. Similarly, the US and other emerging markets are rising on the back of high liquidity phenomena globally. However, a couple of days back nifty made a gravestone Doji and spinning top pattern, which are signs of short-term indecisiveness. The low point of Doji pattern i.e. 13860 can be watched as immediate support and any break below the same can be taken as a cautionary sign for mild profit booking as the market is sitting on heavy gains. Until then traders are suggested to maintain a bullish bias.

Expectation for the week

Mr. Market is expected to take cues from the US wherein the political transition will see its final leg of drama which would drive short-term market movements. Quarterly results will keep markets buzzing with results of IT pack first hitting the markets which are largely expected to clock good performance. However, it would be pertinent to note that the good performance have largely been discounted by the market. One may note that given the result season underway, market is likely to dance to the tune of budgetary expectation rather than India Inc.’s quarterly earnings performance. Investors would benefit from accumulating quality businesses in IT, real estate and cyclical sectors. Nifty50 closed the week at 14018.5, up by 1.96%.

SAMCO family wishes you a very Happy New Year!