Ride the Tide with Caution

Mr. Market during the week appeared to be on steroids with Nifty50 witnessing 13000 levels for the first time ever, mounted on upbeat sentiments. This behavior of domestic markets was in congruence with Wall Street which busted its latest milestone when the Dow Jones Industrial Average topped 30,000 for the first time this week. Market participants across the globe were heartened by the advancement in the development of coronavirus vaccines and news that the transition of power to United States President-elect Joe Biden is finally beginning. Back home, FPI inflows of USD 6.7 billion MTD made India the third most preferred investment destination in Asia after Japan and Korea, which reportedly is the biggest monthly inflows ever.

By scrutinizing monthly FPI flows for this year we can see that FPIs furiously sold equities to the net tune of Rs. 65,817 Crs in March which happens to be at the extreme market bottom. Whereas, now in November FPIs pumped in over Rs. 57,500 Crs in equities near its all-time high. Market participants should surely rejoice the massive foreign buying but it is time to be cautious too since the liquidity and optimism-led rally is majorly driven by market sentiments, where occasionally even the fundamentals are completely disregarded in the mad rush of chasing momentum. If one were to consider markets in its entirety (FPI + DII), markets are inching higher on account of liquidity however the momentum is likely to continue till something unpleasant shakes up the world economy and cause a correction.

Event of the week

The renowned MSCI Global Standard Index rejig with varied additions and deletions is effective from 30th November and this month’s abundant inflows can be majorly attributed to the rejig and possible increase in India’s weight in the global index, that many international fund houses would have had to undergo. DIIs on the other hand are undertaking selling and could still continue with the same but FPIs might not aggressively buy going forward since the MSCI index rejig event is already over. Hence by netting the two we can conclude that DIIs might act as a party pooper and put pressure on the bulls which could lead to correction in the weeks to come. Institutional activity will offer an important clue going forward.

Technical Outlook

Nifty 50 closed the week with mild gains forming a spinning top candle at the rising channel resistance which hints that the rally is getting tired and may take a pause to consolidate its gains. Though majority of sectoral indices closed in positive, Nifty metal and pharma remained the top leaders. Nifty bank which has been the major driver of the recent bull move, has slowed down in momentum and taken a back seat while pharma and IT seem to be taking the charge. Outlook for the short term is bullish but as the benchmark indices are trading overbought we suggest traders take a defensive stance and lighten the aggressive bets. Immediate support and resistance are now placed at 12750 and 13150, a break below the support may lead to a retest of 12400 and break above 13150 might open targets upto 13400.

Nifty50 Update 27 November 2020

Expectation for the week

All eyes could be on RBI’s MPC meeting scheduled next week for comments on the likely inflation trend and any upward revision of growth forecasts. With the economy slowly recovering and facing inflationary pressures, it is likely that the RBI would maintain an accommodative stance. Markets are unlikely to react majorly in either direction given that there is very little room for rate reductions. Going ahead, it is expected that Mr. Market might enter into a holiday mood with no major directional moves. Stock-specific sectoral rotations are also likely to unfold in the near term. Investors are advised to go long on sectors like IT, Pharma as well as well-capitalized private sector banks and NBFCs which might see traction. Nifty50 closed the week at 12,968.9, up by 0.9%.

Catch up rally coming to an end!

The week post the festival season began with a huge gap up opening on back of positive international clues. But soon the optimism faded and fears of a resurgence in coronavirus cases, power tussle in the US and high valuations led to a mildly positive end to the week. FPIs massive buying led to the biggest gap rally in the past two weeks which wasn’t visible in the entire lockdown period rally beginning April. And this depicts that optimism has reached its peak atleast from an intermediate point of view. Further, given that on a daily basis upwards of 10 stocks are included in the F&O ban list also suggests that markets are hovering around its overbought levels, there is too much optimism and it is time for a healthy correction to cool down the bulls-in-charge. It would also be worth noting that even good news was ineffective in taking stock prices higher; case being, Hero MotoCorp which registered its best decade Diwali month sales and ended with inventory at dealerships at all-time post-festive lows of less than four weeks, however, the stock could not sustain at higher levels. This state, when such positive news cannot take stock prices higher, is an indication that markets are in an overbought territory. No sooner, the FPIs slows their buying intensity, markets may witness a healthy correction before Christmas arrives.

Equity mutual funds which represents major constituent of DIIs witnessed an outflow for the fourth consecutive month in October with investors moving out Rs. 2,725 Crs compared to an outflow of Rs. 734 Crs in September. And this ultimately boils down to a simple analogy that equity fund managers continue to book profits at every higher level and investors are raising liquidity by selling their mutual fund units. It is quite astonishing that DIIs, a major market participant, have managed to sell equities worth net Rs. 30,000 Crs in the current month till date. All-in-all this shows that DIIs are pre-empting a correction in the rally and are one step ahead of the move.

Event of the week

The US Treasury Secretary recently announced that their key pandemic lending programs would cease on December 31, 2020 which sent shivers down the world. The surprise termination of lending programs would manifest itself into grim economic outlook which may have a cascading negative effect on the global economy stung by the deadly virus. Also, it seems unlikely that this decision would bode well with both the Republicans and Democrats as they would strive to alleviate the stress caused due to the pandemic. With the side effects of Biden’s victory and power tussle between US Treasury Secretary and Federal Reserve, markets are expected to remain on their toes. And one thing is certain all this indecisiveness could lead to jitteriness in D-Street.

Technical Outlook

Nifty 50 index closed the week with a mild gain after making an all-time high of 12963. But now the benchmark index has formed a bullish reversal pattern which opened with a gap near highs of the week and then gave up all the gains. The rally’s velocity has also been declining along with the volume participation. Infact, Nifty has started facing resistance at the rising channel visible on the weekly chart and might continue to struggle going ahead as it lacks participation from the top index movers like Reliance, HDFC and banking stocks, who have also become a bit stretched on the upside in the short term. We suggest traders to keep an eye on the benchmark and go short unless it breaks the rising channel on the upside.

Nifty50 Update 20 November 2020

Expectation for the week

Mr. Market is likely to witness some amount of buying in the lower order stocks implying some sort of catch-up rally. It is observed that industry laggards are now trying to catch-up the industry leaders in terms of a considerable price action. This process may continue since markets have formed an intermediate top and are likely to witness a correction in front-line stocks. Further, small and mid-caps may resort to a catch-up bounce, however, eventually they too may imitate the front-line players and correct. India Inc.’s quarterly results have largely concluded and bourses are likely to keep an eye on international clues and/or any major updates related to the vaccine for direction. Investors may look to book profits at current higher levels and wait for a correction before buying. In addition to this, good quality IT and Pharma names can be accumulated at current levels. Nifty50 closed the week at 12,859, up by 0.62%.

Markets to Correct post Diwali

Markets opened this week on an extremely bullish note bearing resemblance to positive international clues. Infact, the MSCI emerging market index rejig made FPIs buy heavily into Indian equities which uplifted the mood further. The likely increase in India’s weight in the emerging market index from December could be the dominant factor for the sudden burst of buying in private sector banks, who were laggards in the entire rally. Contrarily, PSU banks witnessed negligible buying which means that this momentum is a fractured rally and as soon as the index rejig buying gets completed, markets are likely to cool down and enter into a longer correction by time. Vaccine news too created a temporary euphoria which soon withered away given that the actual vaccination may take a longer time to reach countries like India. It is also worth noting that back in the last week of March, FPIs had sold aggressively to a tune of Rs. 10,486.31 Crs which marked the very bottom of the market and if history is to be believed such concentrated FPI buying even now in November might register as an intermediate top in the short term.

Moving on to the Q2 corporate scorecard which reported strong PAT figures but there is a two-fold impact which led to the healthy bottomline in companies. Firstly, the corporate tax rate reduction offered in September last year has its last bearing this quarter. Secondly, operating level expenses for a large number of companies were at lower levels which is not likely to sustain once the economy completely opens up and activities reach pre-COVID-19 levels. And both these factors added to the bottomline of India Inc. Mr. Market also has a habit of over-reacting in the short-term and once things normalize, the pace of PAT acceleration should reduce and prices might follow suit. Investors are advised to not get carried away with this short-term euphoria and wait patiently for normalized earnings to kick-in, in order to assess the inherent growth matrix of any company.

Event of the week

Fiscal stimulus 3.0 was this week’s delight which focused on employment creation, access to credit and farm support which aimed at fostering economic recovery. The total relief measures announced by the Centre and the RBI amounts to Rs. 29.87 trillion, or 15% of the GDP. It is estimated that the actual fiscal impact on the overall GDP might be in lower single digits as direct benefits to the common man are frugal despite a so-called hefty stimulus. In comparison, other developed countries who had actually spent upwards of 10-15% of GDP are still struggling for economic revival. India on the other hand seems to have already reached pre-COVID levels given its manufacturing PMI, new record high levels of fuel consumption and stock markets. It seems to be a blessing in disguise that India has cruised through the pandemic without putting much pressure on its fiscal deficit.

Technical Outlook

Nifty50 index after a non-stop rally of over 1000 points is now trading near its all-time highs and infact has now taken a breather to consolidate its gains. The index has become overbought in the short term and a profit-booking move cannot be ruled out. The majority of the recent move was led by metals and banking stocks but IT was the laggard in the pack. Going ahead Nifty50 on account of being overbought in the short term, we may see a retracement up to 12000 to 12200 levels. Traders are advised to keep a buy on dips approach unless Nifty does not break below the rising channel on the weekly chart. Immediate support and resistances are now placed at 12400 and 12800 respectively.

Nifty50 Update 13 November 2020

Expectation for the week

Given that the quarterly results and festive mood is behind us, markets are likely to witness year-end blues. Drawing analogies from a somber Diwali mood in India, it can be expected that Christmas celebrations too may not furiously ignite the heart of consumerism. Lack of any big trigger might drag markets lower and participants might witness time and price correction in the journey till Christmas. India is currently witnessing inflationary tendencies with October retail inflation at 77-month highs and therefore investors should accumulate real estate and metal stocks which can outperform in the current inflationary environment. Otherwise, investors should remain patient and wait for a decent correction before buying. Nifty50 closed the week at 12,720, up by 3.7%.

SAMCO family wishes you and your family a very prosperous Diwali!

Diwali before Diwali!

Markets during the week showed exuberance with wide gap-up moves mirroring US markets. The up move came in as a surprise to many given that litigation is around the corner with the “supposed” winning candidate Mr. Biden having a very narrow majority in comparison to his competitor. Also, the lack of complete majority in the Senate could lead to a slow decision-making process. If this were to happen in India, markets would have drowned in negative sentiments. Currently, it is nothing but sheer liquidity and hopes of additional liquidity in the form of stimulus which is keeping the bourses upbeat. Irrespective of who wins the elections, the stimulus expectation is the main trigger for a celebratory mood in equities and commodities across the globe. And in order to globally sustain this celebration, path-breaking structural reforms will have to be implemented in the near term.

In India, major ground-level economic indicators right from diesel consumption to PMI, from labor-intensive construction activities to GST collections all indicate having touched their pre-Covid levels. However, certain sectors are still reeling under the pressure of economic contraction but stock markets are on their way to recovery with sharp gains this week. Liquor manufacturing stocks, leisure industry participants and other discretionary providers are pinning their hopes on a strong recovery latest by January 2021. The velocity of domestic recovery has surprised even the renowned international financial institutions like the World Bank and the IMF. Going forward, Mr. Market is expected to take a breather for a while given the tremendous run-up in the short term, however, the long-term bull market seems to be intact and India is expected to be a key beneficiary in the post-COVID-19 era, given the comparatively superior structural orientation of our economy.

Event of the week

Mark Twain has rightly propounded – ‘History doesn’t repeat itself, but it often rhymes.’ And rightly so, this times US elections certainly rhymed with history and surprised many! In 2016, when President Donald Trump was inching towards victory, markets tanked given his anti-globalization rhetoric. But post this knee-jerk reaction, markets handsomely recovered and surprised everyone. Similarly, this time prior to the elections there were speculations that Mr. Trump’s comeback would drive markets higher and Mr. Biden’s win would hurt capitalism given his socialist stance, which was perceived to be negative from a stock market view. But much to everyone’s surprise Mr. Biden’s crawling victory coincided with markets inching even higher. Current theatrics succinctly portray that Presidents may come and Presidents may go, but markets will continue its underlying trend.

Technical Outlook

Nifty 50 posted a big bullish weekly candle and remained strong throughout the week. Almost all major sectors contributed positively while the BankNifty and Nifty Metal remained the top leaders. Recently, Nifty index gave a decisive breakout out of its strong resistance zone of 12000 and is now trading near its 9-month highs. Even though our market is recovering to old highs and making strides, global indices like S&P500, DAX, and CAC40 have been making lower peaks despite good gains in the week gone by. Thus, we take a cautiously bullish view on the market and suggest traders to buy on dips or buy around short term supports. Short term support and resistances are now placed at 12020 and 12350.

Nifty50 Update 06 November 2020

Expectation for the week

With current excitement seen in the front-line indices, broader markets especially small caps remained reluctant to join the rally. These very stocks are likely to partake in the run up to Diwali. The long wait for another round of stimulus around Diwali from the Indian Government seems far-fetched and all hopes seem to be dying given that Bihar elections have also concluded. This may not bode well for the domestic market and would bring in disappointment once the euphoria around US election subsides. However, given the massive liquidity being flushed in the global ecosystem, it would be worthwhile to accumulate metal stocks, asset-light real estate players, resilient private sector banks and well-capitalized smaller NBFCs which have steam left for a decent potential on the upside. Nifty50 closed the week at 12,263.5, up by 5.3%.