The rise you see, the fall you don't!

Moving in tandem with the Asian markets, D-street continued to lose its sheen for the second consecutive week with the DIIs turning net sellers for the first time this month since March’21. Optimism on Indian bourses also dampenedwith several international brokerages downgrading their outlook on Indian equities citing unfavorable risk-reward ratios. While secondary markets have retreated from record highs, primary markets have been on a roll. The IPO market already setting a new record with 42 IPOs raising over Rs. 72,300 crores for the first time in any calendar year, could be on track to surpass the Rs. 1 lakh crore mark with a long list of issues in the pipeline.

This IPO frenzy is unsurprising given the abundant liquidity, SEBI easing the listing process and overall bullish sentiments. Bull runs in the past too have experienced similar IPO hysteria. For instance, 2017-18 witnessed 81 IPOs/FPOs/OFS worth ~Rs 98k Cr and 2013-14 saw a similar count amounting to Rs 15k Cr. With funds already blocked in the secondary markets and IPOs being attractive money making opportunities, it had become an opportune time for investors, especially HNIs, to borrow funds for IPOs at extremely competitive interest rates. Investors, who leverage their way to IPOs, profit only if the company lists at a premium higher than the cost of funds. However, in the second half of calendar year 2021, 25% of IPOs listed at a discount thereby leading to losses for investors and increasing risk for financers. This coupled with the mopping up of surplus liquidity by RBI through the VRRR auctions resulted in the borrowing cost almost doubling currently. Since interest costs are already elevated, HNIs are likely to be pensive and selective about the offers they apply for. Therefore, retail investors are advised to not only consider the possible listing gains but also the fundamentals and valuations of the IPOs, andseek out strong businesses with a good long term structural story before subscribing.

Event of the week

As the markets remained turbulent, Bank Nifty held on to its previous gains in the early part of this week and crossed the 41,000 mark.However, it fell in line with other benchmark indices as it corrected mid-week with profit booking snapping its rally. With the larger banks reporting their Q2 numbers, Bank Nifty remained in focus as most of these behemoths either beat or performed in line with the street's expectations. Banks saw their PAT increase on the back of higher interest incomes and improvement in asset quality, which was marginally offset by interest reversals, increased slippages and declining margins. Going forward, the banking sector is expected to perform well in the medium to long term, considering the management commentary of majority banks indicated a strong festive season and an optimistic growth outlook.

Technical Outlook

Nifty50 closed in red for the second consecutive week. The market breadth remained mostly negative for the entire week with Bank Nifty and many other sectoral indices facing selling pressure. Although, Nifty did bounce from a minor support of 17,600 level in the last trading session, the sentiment currently seems bearish. The next crucial support level is now placed at 17,250. A decisive break below this level can extend the price and time correction to a couple of days going ahead. As markets are currently standing at critical levels, traders should keep tight stop losses while taking any positions.

Nifty50 Update 29 October 2021

Expectations for the week

The trading week ahead may be shorter than usual but will definitely be action-packed. News flow and market sentiment could be largely dominated by the FOMC meet scheduled in the next week. While investors seem to have factored in the tapering likely to be initiated by mid-November, the focus will now shift on the timeline of the interest rate hikes in light of the looming threat of inflation. Back home, automakers will be disclosing their monthly sales figure. Despite the onset of the festive season, semi-conductor shortages, rising freight and commodity prices may continue to squeeze margins. Nifty50 closed the week at 17,671.65, down by 2.45%.


The rise you see, the fall you don't!

This week Indian bourses shed some blood as bears tightened their grip. Valuations of numerous companies are bulging while fundamentals trail behind. Interestingly, in majority of the companies that steeply corrected recently in spite of any pessimistic event, FIIs and DIIs have trimmed their holdings in the past quarter. This behavior corresponds to the Dow Theory's last phase in which institutional investors (considered smart money) progressively book profits, while retail investors absorb these volumes and sustain the rally. The inferences drawn from the Dow Theory do seem to be applicable considering the frenzied levels of buying by retail investors in the past couple of months.

The bull run we are currently witnessing began when markets plunged to rock bottom valuations due to worries of an unprecedented pandemic. Institutional investors started accumulating stocks on announcement of trillions of dollars of stimulus packages across the globe, high liquidity gush, gradual opening of the economy and improving business prospects. Seeing such a quick rebound in the stock prices, the entranced retail investors entered the market with innate confidence. The FOMO led to record numbers of new retail investors who tend to pick stocks absorbing every possible dip in the market, without examining the fundamentals. Historically, when valuations get out of sync with the underlying fundamentals, hopes and expectations are two distinct riders driving the market upwards in a treacherous territory of greed. This is usually followed by smart money pulling out plugs leading to a sell off or correction. Whether or not we will also witness such intensive sell offs, only time can tell but events of this week are definitely an indicator that investors should tread the road ahead with caution.

Event of the week

As a slew of companies disclosed their quarterly performance this week, whipsaw movements seem to be the new normal for markets. Abrupt correction was seen in several stocks despite a decent set of numbers. While such contradictory movements may seem surprising, they are not incomprehensible. It could be attributable to the fact that investors appear to be placing higher emphasis to the results beating or missing estimates rather than taking a holistic view. Hence, any minor deviations in results from their estimates, is leading to panicky reactions. Investors are advised to take into account long term business prospects of the companies rather than solely comparing performance to various estimates.

Technical Outlook

Nifty closed on a negative note after a volatile week and is still trading in overbought zones. Other emerging market indices are also finding resistance at current levels and therefore a further correction in the index cannot be ruled out. The benchmark index has strong support at the 18,050 levels. Any break below this support level can trigger a bearish sentiment across the market. We suggest traders to maintain a cautious outlook without venturing in too aggressively until the index makes a decisive directional move.

Nifty50 Update 22 October 2021

Expectations for the week

It is expected that Mr. Market next week may still find it difficult to hold ground and may remain range-bound. Additionally, with the monthly expiry next week, volatility in the market may persist. After hitting the 40,000 mark for the first time this week, Bank Nifty is expected to be in focus going forward as various banks disclose their results in the approaching week. Considering the pickup in economic activity, improving collection efficiency and stabilizing asset quality, a positive earnings outlook from this sector could be expected. Nifty closed the week at 18114.90, down by 1.22%.


Stick with the best, leave the rest!

Indian Markets have created history by hitting milestone after milestone! It started with Nifty crossing 16000 on August 3, sprinting to 17000 on August 31 and surpassing 18000 on October 11 – with the journey of adding the last 1000 points being the second fastest since inception. When we look back, March 2020’s substantial fall seems small against the mammoth rally that our markets have delivered. This upmove isn’t purely driven by only a certain class of investors. While the FIIs set forth their conviction in Indian capital markets in September, by infusing the highest amount of funds of 2021, the retail category wasn’t behind. September also witnessed the highest mutual fund SIP inflows which crossed the Rs. 10,000 Cr mark for the first time. This unionized confidence in India coupled with the timely softening of the CPI inflation in line with RBI’s forecasts steered the swift rally in benchmark indices. It was further incentivized by an uptick in certain high frequency economic indicators like power consumption, railway freight, e-way bills to name a few. While some may call this rally a liquidity driven one, some may call it a greed cycle, the fact remains that investors have made stupendous returns across stocks irrespective of their fundamentals.

At the outset although it may seem that all cards have fallen in place to bolster this optimism and keep the Indian equities upbeat, the investors need to be heedful of the global markets. In the past month alone, while the Nifty 50 surged over 5%, the S&P 500 has dipped over 2%. The divergence of the Indian equity market is not limited to the S&P 500, but also with the other global indices like the Hang Seng, KOSPI, Nikkei 225 which have dipped in the range of over 3% to 7% over the past month. This conflicting behavior may not uphold for too long and a correction may be underway. If this happens, the weaker stocks could witness comparatively steeper drawdowns. Investors should therefore ride this bull rally with fundamentally sturdy stocks rather investing in shares rising on fluff.

Event of the week

As India Inc. revs up its machines, it seems to have hit a speed bump with the ongoing coal shortage. An unanticipated increase in power demand disrupted production and dispatch due to heavy rains as well as the inadequate build-up of inventory before the monsoon has resulted in a coal shortfall. This has culminated into a power crisis as coal accounts for about 70% of the nation’s electricity mix. Panic spread as a majority of thermal plants reported low stockpiles yet the power stocks continued to roar in trade with the S&P BSE Power Index rising over 6.82% this week. This is because investors are looking at the favourable regulatory efforts and the marginal surplus of coal supply over daily consumption which is hinting towards a slow buildup of inventory. Investors should refrain from aggressive investments in stocks which have already shown steep upmoves at current levels.

Technical Outlook

Nifty 50 index formed a big bullish candle and closed the week at a new all-time high. The bullish sentiment is at its peak which is usually considered unfavorable for creating new long positions. The benchmark index is also approaching the rising resistance line, which indicates a limited upside potential in the short term. We suggest traders to not create fresh longs positions and wait for mild dips to time their entry better. The immediate support on the downside is now placed at 17850.

Nifty50 Update 14 October 2021

Expectations for the week

Quarterly results would guide the mood of the markets and are expected to be the buzz of the coming week as they gather pace. D-Street would be all ears for any management insights to determine the future outlook of earning trajectory. With expectations that companies would continue their momentum of the previous quarters into the second quarter, investors may see whipsaw movements in the coming week driven by hits and misses of earnings compared to the market’s estimates. Investors should stay put and place more emphasis on the long term aspects rather than short term headwinds. Nifty 50 closed the week at 18,338.55, up by 2.48%.


Markets caught in a commodity crossfire!

Markets globally witnessed an action-packed week because of the underlying pressure from commodities. Commodities are experiencing a cocktail of price swings since the past year. What started out with the price of WTI oil turning negative for the first time in history in April 2020 has now turned 180 degrees with oil prices hitting their highest since November 2014 after OPEC+ decided to stick to their planned output. Even natural gas soared, with no relief for coal either as it climbed to record highs leaving the nation to grapple with shortages. This spiraled into an energy crunch setting up a domino effect. Metals, especially steel, which has already run up could see a further spike due to rising costs of its energy supplies. Additionally, poor weather conditions and shipping bottlenecks drove costs for cotton, sugar and coffee upwards. As a matter of fact, the Bloomberg Commodity Index touched an all-time high this week. Given the prevalent supply crunch and uncurbed demand, scorching commodity prices are denting growth as well as squeezing margins for companies. And the only way out currently visible is by passing on increasing input costs to the end-user. In fact, commodity-faced automotive, cement and paint companies have already set the ball rolling. Moreover, cooking gas LPG price, on Wednesday, was increased by Rs. 15 per cylinder while petrol and diesel costs surged to record retail rates. And this could be a trend we see increasing, going forward as well, which is definitely not healthy for the end consumer.

While rising commodity prices are a boon to a few, their volatility and spillover effects are definitely a bane to many, with markets facing the brunt. The widening gap between demand and supply is keeping investors on edge as inflationary pressure could slow the ongoing recovery. This also raises concerns as policy makers may be prompted to look at rate hikes earlier than expected to combat rising inflation. Investors must take note of these aspects while analyzing companies for investment.

Event of the week

The RBI’s MPC mirrored FOMC's tone to keep its benchmark policy rate intact. The accommodative stance on repo rates is maintained for the eighth straight time which also derived comfort out of the previous two inflation prints which have been below the 6% upper limit and has led RBI to lower its inflation forecast for FY22 from 5.7% earlier to 5.3% now. However, this time the committee’s approach appeared to be a textbook one, with liquidity management as the first checkbox on their agenda, followed by an increase in reverse repo. Going forward, if the Fed's tone in November is as anticipated, December may be the period when the RBI begins to close the gap between repo and reverse repo rates.

Technical Outlook

After a heightened volatility seen in last week, the Nifty 50 index closed positive for the week. The index managed to bounce from the support around 17450 levels after making a doji candle. Although Nifty is still trading overbought, it did not see any significant correction. Even major global indices have started finding support after a mild price and time correction. S&P 500 index in the last one month has corrected almost up to 6% and is now finding support around 4270. Traders are advised to maintain a bullish bias going ahead but should remain vigilant of any break of newly established support in global indices. Any break may trigger weakness in Nifty too. The support and resistance are now placed at 17500 and 18050.

Nifty50 Update 08 October 2021

Expectations for the week

The Q2 FY22 results season is set to begin next week with large cap IT companies reporting their results first. IT stocks in India have been witnessing a strong uptrend over the past couple of weeks driven by expectations of a ramp up in deals and strong hiring which might continue the growth momentum. Further, Rupee’s depreciation has also played its part in keeping the IT stocks in the green. But macro data on September CPI inflation, manufacturing and industrial production could dictate the index price for majority of the week as markets continue to consolidate in their tight range. Nifty 50 closed the week at 17895.2 up by 2.07%.


Fall down once, stand up twice?

Markets have been experiencing swings as bears try to overpower the resolute bulls. While benchmark indices have been unsteady in either direction, crude prices have made a massive headway. A 25% rally in brent crude oil from $64/bbl to highs of $80/bbl has been in the span of a month, touching the highest level since October 2018. The upmove was courtesy the opening of travel and tourism across the globe causing an improvement in demand amidst limited supply, which led to fears of heightened inflation forcing central banks to speeden up the withdrawal of easy money. This was coupled with a hint by the Fed on increasing interest rates earlier than expected. But amidst all the speculation, the 10-year US Treasury bond yields rallied hitting the 1.56% mark, the highest since June. Not only does a rise in bond yields attract huge capital flows, diverting the FIIs towards the US away from other emerging countries, but it is also a negative for Indian equity markets and the rupee, which experienced significant depreciation in the same period. But the Indian 10-year G-Sec bond yield moved hand in glove with the US Treasury yield as it rose to 6.23% against an expected drop after RBI revealed the borrowing schedule, which indicated that government may borrow less than what the markets anticipated, adding additional pressure on equities. Despite the above headwinds the markets have not experienced what can be called a meaningful correction due to strong support of DIIs who have flushed close to Rs. 8,000 crores in the past two weeks even though FIIs have clearly shifted their interest away from India.

Event of the week

After shying away from the limelight, power stocks have made a comeback after 11 years. This week the S&P BSE Power Index outshined the Sensex with a near vertical rally in contrast to a drop of 2.20% in the benchmark index. The ongoing coal shortage, rising plant load factor and a surge in the average short-term price per kWh on energy exchanges have evidenced this unanticipated recovery in power stocks. Adding to this excitement is the proposed Electricity (Amendment) Bill which through smart metering, de-licensing of distribution and easy resolution of disputes may change the face of the troubled power sector we know today. Thus, at least in the near-term, investors can ride this momentum on fundamentally strong players albeit with some caution.

Technical Outlook

Nifty 50 index posted a big bearish candle after eight weeks of a sharp rise. Although Nifty is now trading around short-term averages, it is still outperforming its global peers and trading overbought in the short term. So a further slight correction up to 17250 - 17200 cannot be ruled out. Traders are suggested to maintain a buy on dips approach as positional outlook still remains bullish as long as Nifty does not break below 17000.

Nifty50 Update 01 October 2021

Expectations for the week

With an array of exciting announcements, traders can expect an action-packed week ahead. Markets will attempt to read between the lines of the RBI’s monetary policy. Considering that economic activities have not yet completely reverted to their pre-pandemic levels; RBI is unlikely to remove the economy’s training wheels. However, any divergence from this stance could lead to whipsaw movements. Further, with the OPEC meet on determining the output for November, market participants should brace for more volatility in crude oil prices. Additionally, the Fed will focus on the US jobs data to be released towards the end of the week to decide their next steps on tapering. This caution could creep up in the Indian markets as well and investors are advised to be picky with their stock selections. Nifty50 closed the week at 17532.05, down by 1.80%.