Week Ahead to be Weak Ahead

During the week, Mr. Market lost its upward momentum and it looks like distribution has set in motion. Markets are at extremely overbought levels and the optimism too seems to be at elevated levels. Rollover data in frontline stocks suggest that complacency has crept in and majority of long positions have been carried forward to the next month. Such kind of extremely high optimism may lead to short term corrections. Rossari Biotech is a case in point wherein market participants gave a euphoric listing gain but within a week the fire power exhausted and this throws light on what lies ahead for the general market. Life Insurance Corporation of India (LIC), whose public offer is expected to be the largest ever in the history of the domestic capital markets, is now a reality which may take away the precious liquidity from the market by Diwali 2020. A lot of other IPOs too are lined up in next 2-3 months which historically signals capping of upside potential for the broader markets.

The FMCG basket reported bleak quarterly numbers but this surprised D-Street as expectation was that demand for essentials during the lockdown should have not have been impacted but it did, therefore post numbers heavy weights like HUL and Nestle corrected. Market participants have always believed the FMCG sector to be a defensive play unaffected by any economic slowdown but that's not always the case. Where the participants expected a washout quarter, stock prices initially saw a bit of selling pressure but later bounced back higher for eg. Indigo sharply moved higher after massive losses. Hence traders are advised to corroborate their views with the Market's consensus sentiment before jumping the gun.

Event of the week

POTUS Trump issued four orders restricting the pricing power of generic pharmaceutical companies. Initially, these orders did not go down well with the stock prices seeing a bit of correction. But very soon, the entire Pharma space bounced back and it now seems to be ready for a rally after a short consolidation of 2-3 months. It can be well construed that when bad news cannot take stock prices lower, nothing else can! Therefore, Pharma space looks resilient and has higher chance of inching upwards in the short to medium term. Q1FY21 earnings performance too is rosy for majority of them.

Technical Outlook

Nifty50 posted a red weekly candle after rallying for six weeks consecutively. The index is overbought in the short term and may witness a profit-booking move led by weakness in heavyweights like RIL and HDFC Bank. The trend for the Bank Nifty index is already weak and consolidating in a range since the last four weeks. Selling pressure in Nifty50 at higher levels and weakness in Bank Nifty is likely to drag the benchmark indices lower. We maintain a bearish outlook going ahead and believe a retest of 10600 is a possibility within a couple of weeks.

Nifty50 Update 31 July 2020

Expectation for the week

It is RBI's turn to console and mend the Indian economy, post US Federal Reserve's status quo on interest rates and a repeat in pledge to use its 'full range of tools' to support the US economy. It is now in the hands of RBI to further lubricate the economy either by a decent rate cut or policy initiatives. Their stance on moratorium or onetime restructuring (COVID-19) will set the tone for the entire financial sectors for weeks ahead. In general, Bank Nifty has underperformed and pessimism continues to run high. Therefore, any move by RBI will create short term volatility in the banking stocks. Yes Bank's capital raising was not lauded by the market as expected and hence it can be concluded that capital hungry sectors will remain under pressure going ahead. Investors are advised to remain cautious and partly book profits. They should wait for a sharp correction before making any fresh bets. Gold is likely to continue its march to higher levels and risk-taking investors can look to allocate fresh monies at current levels for their long-term portfolio. Nifty50 closed the week at 11,073.5, down by 1.1%.

Market Nearing It's Overbought Levels

During the week, market continued its euphoric mood rally with less participation from broader indices. It is well observed that percentage of shares moving in tandem with Nifty50 is far lower than what was witnessed in previous few weeks. The early corporate numbers are being cheered but a good part of Q1 outcome which is yet to come may not portray a promising picture. IT, FMCG and financial services including banks have given an early indication that All Is Well! But nonetheless COVID-19 in itself was raison d'etre. IT companies managed to trim their operating costs, banking businesses were given leeway by RBI for delay in NPA classification whereas financial services witnessed people staying indoors transacting digitally to procure insurance policies for their loved ones, along with a lot of trading and investing. But this may not continue for long. When ground reality catches up and life after COIVD-19 becomes the new normal, the exceptional gains that are being cheered by the street currently will lose sheen. Mr. Market has a habit of overreacting to short term events and that is why it would be prudent to avoid consensus views on the street that IT, FMCG, financial services including banks will perform better in near to medium term, so book profits or at least avoid them.

In last 9 days, FPIs too have been a part of the FOMO rally. They have bought Indian equities worth around Rs. 5,413 Crs. Since beginning of March's fall, it was seen that FPIs have sold aggressively in the month of April, May and June except their participation in Kotak's QIP, RIL's rights issue, HUL's and Bharti Airtel's and other stake sales which were not purchases from secondary market. However, this is the first time since then, that they have bought aggressively to this tune directly from the secondary market. Historically, it is observed that FPIs aggressively buy at tops and sell at bottoms.

Event of the week

European Union leaders have agreed upon an exceptional stimulus package worth USD 860 billion to pull their economy out of the corona black hole. And this move is expected to further accentuate the rally in gold, silver and other metals. Since this infusion is in addition to trillions of dollars announced globally especially by US, Japan and EU, gold and silver prices are further expected to reach newer highs in medium to long term. Investors are advised to regularly invest in these commodities. However, one should not sell their holdings/ positions in these commodities as this upmove has still lot of potential left.

Technical Outlook

Nifty50 closed higher after opening with a gap up at the start of the week. This is the sixth consecutive week that Nifty is closing with gains. The rally in the index is being supported by positive development on the vaccine front and participation from some of the heavyweights from oil & gas and IT sectors. However, the BankNifty which has been an all-weather partner has seen a fall in momentum. The banking index has formed a bearish shooting star pattern but managed to close on a mildly positive note. The divergence between Nifty and BankNifty is going on for last three weeks. We continue to maintain a cautiously bullish outlook on Nifty with immediate support and resistance placed at 11000 and 11240 respectively. However, a break below 10900 may lead to short term weakness.

Nifty50 Update 24 July 2020

Expectation for the week

As markets stroll along with the result season, they are continuously discounting surprises in results, if any, as well as the discounting commentaries from the management on irreversible impact on businesses. Atleast from a rhetoric point of view tensions are increasing everyday between US and China and India too is taking actions against Chinese business interests by overhauling internal policies to benefit domestic counterparts. Supposedly the entire world is virtually orchestrating policies against China by imposing sanctions, rummaging anti-dumping duty, incentivizing to move out from China and so on. It seems that global peace is nearing its all-time lows and equity too cannot prosper in such times. Investors are advised to be patient and wait for a deeper correction. Nifty50 closed the week at 11,194.2, up by 2.7%.

Don't Get Too Excited By Q1 Earnings Yet

Mr. Market continued its range bound movement with intermittent hiccups due to rise in daily COVID-19 cases cushioned by hopes for an early vaccine which capped the momentum neutral with upward bias. Banks in the US are staring at upwards of $30Bn hole in their asset quality and therefore did not participate in the March-June recovery period, as Dow and Nasdaq had witnessed. Back home in India too, the same fears have precipitated in banks and NBFCs who are steadfastly raising buffer capital. A strange scenario of bunching up of FPOs, QIPs and capital raising spree will be witnessed by Indian investors in weeks to come. From Yes Bank to Axis Bank to ICICI Bank to SBI everyone is expected to rush to markets to raise capital in order to beef up their balance sheets. Recently, the RBI Governor too sent a clear signal to the Indian Banking participants that they would need to shore up capital; all this is expected by September when the relaxed NPA disclosure norms expire. Unlike in the US wherein helicopter money from the Fed would make it easier for banks to get money, the financial services sector of India Inc. will face challenges in raising such huge amounts of capital. Investors are advised to stay away and keep a negative stance on the banking sector and accumulate only on panics for their long-term investment portfolio.

India's retail inflation, measured by Consumer Price Index (CPI), unexpectedly clogged 6.09% in June due to temporary dent on the supply side. This may force RBI to rethink their stance for any further rate cut in August's MPC meeting. It is also true that a large part of Indian population invests in FDs and reducing interest rates further would not serve the purpose as it may indirectly impact consumption from a bigger perspective. On a deeper look, the hurdle is not RBI's stance on interest rates but the willingness of banks to dispense loans. Given the current stature of the economy, lenders seem wary and are unwilling to dispense loans on fears of spike in bad loans deforming their balance sheets. At the same time, demand side too seems weak except the MSME sector wherein guarantees are provided by the Government themselves, prompting a flurry of lending and borrowing activities in this segment. RBI will have to smartly act to balance the expectations of all stakeholders.

Event of the week

IT companies like Infosys, Wipro are amongst a few who witnessed stock frenzy this week and gave an impression of a good head start to the earnings season. These companies surged on the back of sound operating margin expansion and future growth guidance in the range of 1-2%. Although growth expectations are still inline with the past trajectory but the cost reduction trigger has re-rated IT stocks in India. The earnings performance by IT players has brought about renewed confidence in D-Street which was supposed to be a "washout quarter". Going forward it is expected that such performances will be largely discounted with a kneejerk reaction without significant price movements.

Technical Outlook

Nifty50 formed a hanging man candlestick pattern on the weekly chart after a narrow range candle in the previous week. This gives an impression that the market is tired of gains and is witnessing a tug of war between bulls and bears, waiting for a bearish trigger. BankNifty which is a significant driving force for the market and benchmark indices has witnessed a big bearish candle after a shooting star in the last week. We believe the range of 10900 and 10950 can unfold as a crucial hurdle for Nifty and expect limited upside. Immediate support on the downside is now placed at 10570 and break of the same may lead to downward decent.

Nifty50 Update 17 July 2020

Expectation for the week

India Inc. will carry on with their pseudo-event of earnings season in the coming weeks. The bellwether of financial service sector, HDFC Bank would come out with their quarterly numbers on Saturday. It is expected that Q1FY21 may not see much pain from the financial space since the real dent will only be felt post the moratorium ends. Hence, markets are expected to flex their muscles in a range bound manner. Going ahead, intraday traders can follow a buy on dips strategy in the IT sector and for companies coming out with bad earnings performance. Investors are still advised to stay on the sidelines and wait for market dips before investing. Nifty50 closed the week at 10,901.7, up by 1.2%.

Closer the end of lockdown, faster the fund-raising spree!

Markets continued their fractured upmove defying grim economic growth prospects of India as well as the world as projected by IMF in its latest report. It seems that first time investors and traders who can also be termed as lockdown players have taken this market higher specially by shoring up the share prices of small cap and penny stocks. Majority of stocks in BSE500 and Nifty50 are hovering close to 200-day moving average levels which bring the markets at an equilibrium and going forward even a slightest push of liquidity would take the bourses higher, but this seems unlikely to happen given the outflow of funds.

Mutual fund industry witnessed its lowest monthly net inflows in equity schemes in four years at Rs. 240 Crs which implies good proportion of redemption in domestic equity funds. At an aggregate level, average mutual fund AUMs have reduced by nearly 8% QoQ, this can majorly be attributed to redemptions in the months of April-June 2020. A large chuck of liquidity will also be squeezed-out from secondary markets in the form of FPOs, IPOs, and QIPs. When too big to fail financial institutions like ICICI Bank and Axis Bank are expected to raise amounts of Rs. 15,000 Crs each, non-bank lender HDFC Limited is expected to raise around Rs. 14,000 Crs to meet any potential inorganic growth opportunities, SBI which took an enabling resolution of Rs. 20,000 Crs to raise capital and many more come one by one to raise money, this optically raises a question mark on the financial sector of India. Why is so much money required so suddenly? Investors are hoping that by September quarter earnings, clarity will emerge but it is also expected that majority of money will be raised prior to the September quarter. How India Inc's September earnings would turn out only time will tell but given the fund-raising exercise it seems all is not well. It is advised to remain cautious while picking NBFCs and PSU banks for now.

Event of the week

Country's largest software services firm Tata Consultancy Services reported its Q1FY21 net profit at Rs. 7,008 Crs vs. Rs. 8,049 Crs the previous quarter. IT giant's constant currency revenue growth has also slipped to -6.9%. However, taking a forward-looking view, the IT major has given a glimmer of hope that margins in coming quarters would be back to pre-COVID-19 levels by Q4FY21. Its software and IT service verticals are also expected to accelerate growth post COVID-19. It would be interesting to judge future growth of other manufacturing and service companies from their Q1FY21 results and management commentary. So far so good for TCS operating in IT services but the health check-up of real economy is needed for markets to find their feet at current juncture.

Technical Outlook

Nifty 50 opened gap up in the current week, however, trading range remained very narrow compared to all other weeks since the bottom of 7500. The entire rally has unfolded in the form of rising wedge formation and at the current juncture Nifty index is trading around the resistance of rising wedge and approaching the crest of the wedge. The participation in the rally is not broad-based, only a few heavyweights are driving the index higher. The bank nifty index, which had been rising mutedly until now, has outperformed the benchmark index in the week gone by and financial stocks have contributed the most towards Nifty gains. We believe the market is little stretched in the short term and expect a very limited upside. A break below 10600 will significantly dent the strength of the bulls.

Nifty50 Update 10 July 2020

Expectation for the week

Reliance, largest private sector company by market cap, has scheduled its AGM in the coming week. Given by recent past records, RIL's AGM improves the mood of its stock price and given the huge weight in index, markets too are expected to remain on a higher side unless negative global cues spoil the RIL AGM party. This time it is expected that the AGM would garner maximum viewership given the slew of deals cracked for Jio Platforms. Q1FY21 results are bit slow but will be important to assess the impact of post lockdown scenarios and the extent of demand uptake in the economy. Nonetheless, results are expected to be exceptionally weak but commentary is expected to be strong enough which would keep the prices where they are in a narrow range. In general, the bigger trend triggers will emerge on the back of how developed countries and foreign funds behave and respond to the post COVID-19 dynamics. Domestic factors may not have any major impact going ahead for the next few weeks. US markets are likely to remain rangebound but any severe crack can bleed domestic bourses as well. As usual, investors are advised to stay on the sidelines and not indulge into FOMO buying but wait patiently. However, they should continue with their SIPs and regular investments in the market. Nifty50 closed the week at 10,768.0, up by 1.5%.

Indian Robinhood Traders Drive Nifty Rally

Markets during the week moved higher on hopes of a COVID-19 vaccine coming to everyone's rescue earlier than expected. Bourses across the world are also riding on early availability of a vaccine inspite of unstable economic growth. Another round of shutdowns in a few countries is frightening but hopes of a drug/vaccine are keeping markets upbeat. A peculiar historic trend during bull market tops is observed currently. From beginning of April wherein general markets have moved higher, there are dozens of companies with negative equity value, aka Penny stocks have moved higher hitting daily circuit filters. Some of them like GTL Infrastructure, JP Associates, Unitech, R Power, Jain Irrigation, Sintex Industries etc. having moved higher by 300-500%. No wonder market veterans are surprised by the rally in frontline stocks but the underlying reason which is driving the stocks higher can be deciphered from this strange movement in penny stocks. It is further surprising that this trend of Penny stock buying is also visible in US and other countries as well. Therefore, it is the retail investors (Indian version of Robinhood traders) who are at home during this lockdown tapping prices higher. It is quite likely that they may also have invested in frontline stocks; however, conspicuously their high interest in penny stocks is quite visible and frightening. Handful of these penny stocks have also now started to reverse the trend and are hitting lower circuits. It’s time to be cautious!

This week, Gold surged to its lifetime highs crossing USD 1780 per ounce which indicates that the prices are going to remain strong despite decent equity returns. In general, when equities perform, which indeed has happened in the past 3 months, gold does not perform. But this time around, gold too seems to be in a strong bull grip with high probability of touching 1900-2000 levels in medium term. During these uncertain times, those who think have missed out on the equity rally are advised to allocate some portion of their portfolio to gold atleast for the next 3-5 years.

Event of the week

Urban India has been impacted more by the aftermath of lockdown compared to rural India which is witnessing a faster recovery and normalcy. Auto sales numbers too paint a similar picture. In June 2020, though the pace of monthly declines in sales volume has slowed down in four-wheeler segment but they are still down 53-54% odd on a YoY basis. This shows that odds are not in favor of four-wheelers yet. Whereas, the largest two-wheeler manufacturer Hero MotoCorp reported 4.5 lakh units wholesale dispatches for June 2020 which is around 75% of June 2019 volumes and this reckons a faster recovery in business operations which is now reflected in their stock price. Hence, business houses which largely focus on rural and semi-urban India have seen major traction in demand during these uncertain times.

Technical Outlook

Nifty 50 after forming a spinning top candle in the previous week has rallied swiftly. The index is now hovering around 10,600 mark which had acted as strong support on the way up and might turn into a crucial resistance. Each leg of the rally from March till now is getting narrower in the price range and the whole rally has occurred in the form of a rising wedge pattern which is bearish and might be nearing its termination. Though there is a lot of optimism on the Street and global equities on the hope of positive developments on drug trials, we assume the market is overbought in the short term and expect limited upside. Going ahead we suggest investors to remain cautious as any negative development on global equity might trigger a risk aversion sell off. Support for the index is now placed at 10,200.

Nifty50 Update 03 July 2020

Expectation for the week

A tug of war between bulls and bears have now come to a grinding halt. Whatever bulls had to buy is already done and bears too have covered their large part of shorts. In addition to this, given that open interest across all series is muted and delivery volumes too are lower than the previous month, majority of stocks are at or near their 200-Day EMA. Markets are expected to remain sideways and range-bound, unless some dramatic triggers turn the wheel either up or down. India-Sino escalation may turn out to be a show spoiler, on which markets may react negatively in a sustained way. Further, continuous selling pressure from FPIs in the secondary market may not let the bulls take charge. There seems to be an absolute lock-jam and July 2020 is anticipated to be a boring month for both traders and investors. It is expected that a definitive movement in markets may be visible once India Inc. unveils its Q1FY21 earnings performance with its first-hand analysis of ground level reality. In general, both investors and traders are advised to stay away from the vicissitudes of current market. Nifty50 closed the week at 10,607.35, up by 2.2%.