Corrections – A part of the Investing Game!

Markets during the week experienced high volatility by closing in green on some days and some in red but majorly the bears continued to hold their grip on the benchmark indices. Post Nifty’s swift breathtaking rally from Mar’20 lows, it only seems logical that markets witness a healthy correction after making an intermediate top at highs of 15431. Figuratively, this correction can be compared to the steady process of releasing steam from a pressure cooker in order to let the food cook properly. Markets also need a slow and steady approach for it to cook up for the bigger rally, otherwise the built up steam without an outlet can lead to a bigger unexpected crash leading to larger losses for investors. Hence, corrections are a part of market’s behavior in the long run. Global benchmark indices in the US, Europe, Asia are all following a similar trend and are witnessing pressure from various macros. Different variants of the virus are also clouding economies with an uncertainty of renewed lockdowns. Therefore, bulls have preferred to remain on the sidelines as the global economy attains the much needed stability around the second wave of coronavirus.

Despite the macros playing their game, this week there was a key development on the banking front; the moratorium period for banks has come to an end. Although the move was as expected, the true picture of the asset quality of banks will now come into the forefront in the coming quarters. Most banks have made sufficient provisions in terms of their bad loans and seem well-prepared but the true pressure on the books will only be visible when the provisional NPAs are reported as actuals. This was one of the main reasons BankNifty witnessed heightened volatility. With benchmark indices under pressure, investors can make use of the opportunity to accumulate quality stocks, which have witnessed decent correction from their highs, by allocating a small portion from fresh funds.

Event of the week

Nifty Auto has been quite a laggard this week and the fall was in congruence to the weakness observed in the Global Automobile Index. Automobile players across the globe persistently witnessed shortage in semiconductor chips which has disrupted and even temporary halted production in some cases. The supply crunch and arise in base metal prices have forced automakers to resort to price hikes denting demand for an already cyclical industry. Further, with rising petrol and diesel prices domestically, automobile demand continues to remain under strain, all of which caused the selloff in autos. Investors are advised to be watchful of these developments before gaining exposure to this space.

Technical Outlook

Nifty 50 index closed on a negative note in the weekly candle with the index now trading at its rising channel support drawn from March 2020 lows on a linear scale. The market breadth remained mostly negative for the entire week and almost all sectoral indices closed in red. The Nifty index now seems to have found support and opened with a bullish gap on the last trading session. A similar pattern was observed in BankNifty index as well as other emerging indices which experienced a small bounce. As long as Nifty is trading above 14300 levels, a short-term bounce cannot be ruled out. Traders can maintain a mildly bullish outlook as the immediate resistance for Nifty now lies at 14900.

Nifty50 Update 26 March 2021

Expectations for the week

In the absence of any major event, markets can remain volatile on the basis of incoming news flow especially on the rising cases and lockdown front. New IPOs can continue to hit D-Street as we approach the last trading week of FY21. As the week will be a short one due to festivals, investors can look for knee-jerk reactions in specific stocks as an interesting opportunity to buy and commit a small proportion of fresh capital for the longer term, before the start of Q4 earnings in April. Nifty50 closed the week at 14507.30, down by 1.61%.

Why are markets facing selling pressure?

This week Indian markets behaved contrary to expectations and decoupled themselves from the US indices. While domestic bourses remained under pressure and signalled caution, the US indices managed to crawl back to make life-time highs. It was indeed the Fed's comments that they will not retreat from zero interest rates or their bond purchase plan any time soon which optically reinstalled confidence but the behaviour of bond market was starkly opposite. A reiteration of their dovish stance instead of defusing market's concerns has more puzzled them. However, the excitement didn't last long and despite an upbeat policy, bond yields spiked along with commodity prices across the globe.This indicates that even good news isn't cheering bourses and most of these positives were already factored in. Indian markets also eventually took cues from US and showed signs of weakness.

Back home, India is dealing with its own set of macro issues. Number 1 being the fear of a second wave of coronavirus. To add to it, rising retail inflation is also taking a toll on themarket's sentiment. Although the number of Indians getting vaccinated is rising, market participants are turning cautious towards equities on fear of inflation, rising bond yields and possible lockdowns. FPIs too have started to wobble from their continuous buying spree for a few days in the current month. All of this points out to the weakening bulls which aren't able to hold the markets. On the contrary, there is more of retail speculative liquidity building in the markets. This is visible through the exorbitant amount of funds being allocated just for the subscription of 6 IPOs this week. Retail investors have poured in giant amounts just this week merely for IPO subscriptions. The comprehensive nature of the markets is portraying caution. Hence investors investing with 5 to 10 year horizon can hold on to their stocks while medium term investors can book profits and wait for deeper cuts in the markets before investing.

Event of the week

The Union cabinet's much awaited DFI bill of Rs. 20,000 Crs was cleared this week with an aim to provide finance exclusively for infrastructure projects. The goal is to attract further investments and lend approx. Rs. 5 lakh crores over the next 3 years. The bill is expected to benefit infrastructure projects with long gestation periods as the funding will ensure that they are not hindered due to any financial constraints. This move fares well for oureconomy where infrastructure development is the cornerstone to bolster a virtuous economic cycle. It is likely that with a strong financial-backing, DFIs will be able to ignite the next cycle for the infrastructure sector as a whole.

Technical Outlook

Nifty50 index closed on a negative note after witnessing selling pressure throughout the week.The index broke its range of 14,450 to 15,350 but if this break down sustains in the week ahead then only markets can go lower. Otherwise, if markets stabilise at the current levels then Nifty can regain its consolidation within the said range. But any decisive break from these levels can take the index further down to 14,000 in the short term. Traders should keep appropriate stoplosses while taking positions as markets are currently standing at critical levels.

Nifty50 Update 19 March 2021

Expectations for the week

With the rise of COVID-19 cases in India, investors should keep an eye on any developments which can impact supply chains of corporates. Bond yield movement should also be observed as this will dictate the sentiment towards equities over the near term. Indian markets could still witness a slew of IPOs in the coming weeks. No other major events are expected in the near future so markets can see some weakness. Investors are advised to keep sufficient liquidity which can help them take advantage in case any healthy correction comes up before the closure of financial year. Nifty50 closed the week at 14,744, down by 1.91%.

What is leading to the IPO Frenzy?

Equities across the globe continued to remain buoyant throughout the week but domestic market witnessed pressure on Friday. Global and Indian markets thoroughly danced to the third round of stimulus checks which The US House passed under the administration of the new President. Recent remarks from Fed chair Jerome Powell also made it clear that the central bank has no intention of changing its approach towards large-scale purchases of securities or tampering low interest rates. Similarly, the European Central Bank announced that its bond buying programme will be conducted at a significantly higher pace in the coming quarters. These actions by Central Banks and Governments are mainly to address concerns of slowdown of economic activities. All major economies have been giving enough assurance time and again that there will be no derailment in economic recovery and there will be infinite fire-power in the form of low cost credit money in the system, also casually termed as “Cheap Money”, to tackle and revive the crippled economy.

This isn’t the first time that low cost source of money are leading to expensive equity valuations. In the past bull markets too, liquidity tailwinds have always been a big catalyst to boost equity returns. During bull markets in the past many years, India has witnessed a peak of over 80 public issues while when the sentiment mellows down the number has dropped. The current rush in primary markets through IPOs, FPOs and OFS is nothing but history repeating itself in-tune with the current bull market rally. Indian retail investors too have shown their excitement by subscribing to IPOs for first day listing gains, making FY21’s first day gains the highest in at least three years. 78% of total stock listings in FY21 have seen first day gains and this surreal inflow towards public issues is definitely due to it being a bull market. It should however be noted that during times of such high spirits, even lower-grade issues tend to see high subscriptions. Investors are therefore suggested to take an informed decision on IPOs keeping their risk and liquidity needs in mind and avoid issues which are weaker from a fundamental perspective.

Event of the week

While inflows into direct equities is increasing, gross SIP contributions in Feb saw a MoM decline of Rs. 495 Crs as per the AMFI data. This tepid response in SIPs and more inclination towards direct equities also shows the behaviour of retail investors who are in search of higher returns by direct investments into cyclical stocks, commoditised bets and real estate stocks. Surprisingly, contrary to the past bull markets, retail investors are slowly redeeming from low return generating funds and moving towards direct investments in equities. The current rise in number of demat accounts also substantiate the above claims. It would be interesting to see if retail investors continue to redeem their funds, decrease SIPs and behave contrary to their past behaviour pattern when they use to redeem during bear markets.

Technical Outlook

Nifty50 index closed the week on a neutral note after experiencing selling pressure around its all-time highs. The index is now contained within a narrow range of 14850 to 15270. Market breadth also remained very choppy throughout the week. Bulls and bears seem to be in a tug of war for the short-term directional move. Break of the said range on either side will dictate the trend in the short term. However, on a larger picture markets still remain deviated on the upside and a break below the recent lows of 14470 will trigger short-term weakness. Until then we suggest traders maintain a neutral to negative outlook.

Nifty50 Update 12 March 2021

Expectation for the week

As we approach the end of this roller-coaster year, markets are expected to remain range-bound especially because of focus towards tax planning and portfolio rejig. Lack of any relevant trigger in the markets could also keep bourses in a tight range. Individual themes such as PSUs could continue to play out if there is news on disinvestments and sector rotation could be witnessed in search for higher returns. Investors are advised to continue to ride the bull wave and avoid aggressive investments in overvalued stocks. Nifty50 closed the week at 15030.95, up by 0.62%.

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Value V/s Growth – Which theme played out better?

The first week of March started on a high note with India’s Q3 GDP growth returning to positive territory. India is one of the few major economies which sailed out of a technical recession after two successive quarters of negative GDP growth. All credit for this recovery goes to the Government’s expenditure, low interest rates by the RBI which led to the reopening of the economy and aided domestic consumption. Market participants especially FPIs validated GDP figures and managed to keep their exuberance high, ascending equity prices higher. Another data point which cheered the street was the GST revenue which crossed Rs. 1 lakh crore for the fifth time in a row. All these stats are pointing towards the fact that this quick rebound in economic activity especially in the industrial manufacturing and infrastructure front is causing a lot of optimism in the Indian markets.

With equities again inching towards their previous highs, the argument of growth vs. value has been reignited. This disagreement was stirred by movement of MSCI World Value Index which rose 4.5% in contrast to a mere 0.3% gain on the MSCI World Growth Index in February. In India too, commodity stocks have hardly ever beaten benchmark indices for a sustained period of time, making them a good fit as value plays. Resembling MSCI index, even a perpetual laggard such as the Nifty Commodities index managed to outperform the benchmark index during the week. Hence, value stocks have picked up momentum since sometime now and going ahead too, the value theme is expected to play out as growth picks up in the second half of 2021. Faster rollout of vaccines, strong Q4 numbers from the low base of last year and a resumption of urban India will all add to the value party. Hence, investors should keep looking for value buys for investment.

Event of the week

Auto sales numbers for Feb’21 have been fairly positive largely fueled by recovery in the urban market and strong traction in demand. Major passenger vehicle makers along with two-wheelers posted impressive double-digit YoY growth numbers. Furthermore, tractor sales have yet again managed to clock robust 20%+ YoY growth prompting sustained resilient rural recovery. This is one sector where the exorbitant rise in fuel prices haven’t had any significant impact yet. But if the escalation continues then the sentiment of buyers will be impacted. Hence, it would be imperative to pay heed to the auto numbers in the upcoming months to understand the underlying impact of fuel prices and future trajectory.

Technical Outlook

Nifty50 index closed the week on a positive note on the weekly chart candle however markets witnessed a choppy week of trading with a negative market breadth. The index closed positive only because of some heavyweight movers like Reliance, TCS and Infy in the week, otherwise it is losing momentum on the upside. Other global indices such as S&P500, Kospi, Taiex also remained weak. On the upside, Nifty is likely to remain capped at immediate resistance of 15270 whereas on the downside immediate support is now placed at 14630. We suggest traders maintain a neutral outlook.

Nifty50 Update 05 March 2021

Expectation for the week

As there are no major events in India in the coming week, all eyes would be on the US events for triggers. Any unanticipated outcome of 3/10/30 year treasury auction arranged next week in the US would directly impact bond yields and in-turn equity valuation. The IPO season in India is going on in full swing and March is expected to flood the gates of D-Street with more primary issues signifying exuberance of liquidity. Value and cyclical stocks have gained traction in the past few months and investors should continue to keep their exposure towards these value and cyclical stocks. Since gold has retraced from its highs, investors can allocate a small portion of their portfolio towards gold for adequate diversification. Nifty50 closed the week at 14938.10, up by 2.81%.