Yet Another Range-bound Week for Dalal Street!

Indian markets largely remained range-bound in the week as the tug-of-war continued between the bulls and the bears. The recent surge in Covid cases to around 4 lakhs plus added to the turmoil in many MSMEs and SMEs but stock markets seemed unrattled. However, worried RBI announced a set of measures to improve liquidity for the healthcare sector and the smallest stakeholders, the most vulnerable level of the pyramid. Although not a moratorium, the stance of the central bank has been on providing help in a staggered manner to the needy. In the process they have permitted banks to park this surplus healthcare related liquidity at 40bps higher than the reverse repo rate, so lenders are also not at a disadvantage. Infact, the new restructuring proposal applicable to borrowers with aggregate exposure of up to Rs. 25 Cr not only provides them the time to match the cash flow with repayment obligations but also ensures liquidity support. All in all, these measures definitely picked up the mood of the financial stocks mid-week.

Benchmark indices also remained elevated because of other macro aspects such as GST revenue whose collection hit record highs of Rs. 1.41L Crs in April and headline manufacturing PMI which managed to stay above the 50-mark, an expansion zone, for 9th months in a row. Both these factors signal buoyant economic recovery in the offing. The increase in income will entail reduction in fiscal deficit and larger room for expansionist measures. But the rising cases could puncture the pace and a rapid inoculation drive is the only cure to end this viscous cycle. There is definitely more confidence from India Inc. this time around and the Q4 numbers are also showing signs of resilience in our economy. Investors are therefore advised to accumulate stocks with robust cash, free cashflows and less leverage for a longer horizon while ignoring the short term hiccups.

Event of the week

Steel manufacturers reported a record number of deliveries in Q4 with growth coming in from increased prices and elevated demand. China’s decision to remove the rebate on VAT charged on exports eventually makes exports from China less lucrative paving way for Indian steel manufacturers. Further, the Chinese ministry plans to reduce overall domestic steel production, a move towards their carbon neutrality goal by 2060. All this led to an increase in HRC prices thereby boosting realisations for steel makers. The decision to ramp-up infrastructure globally, higher steel prices and supply constraints combined added to the sharp performance in steel players.

Technical Outlook

Nifty50 index closed the week on a positive note, however, the price is still oscillating within a consolidation range. The market breadth also remained quite strong and many stocks are witnessing a fresh upmove or continuation in uptrend. But as long as Nifty trades below the lower end of the rising channel, there are chances of this rally being a bull trap. The short-term support and resistances are now placed at 14400 and 15000, break on either side will dictate the short-term trend. We suggest traders maintain a neutral bias on the market and keep strict stoploss below immediate support.

Nifty50 Update 07 May 2021

Expectations for the week

The coming week is a short one but markets may still find it difficult to hold ground and can sway directionless within the range. The week will bring a host of economic data from India industrial production numbers to inflation rate to manufacturing production figures. But these numbers can be taken with a pinch of salt as markets are a forward looking and the figures are of the past. Any fierce selling on part of FPIs may take markets lower unless the domestic players can maintain the dynamics. Investors are advised to stay put and increase allocation to equities on every healthy correction. Nifty50 closed the week at 14,823.15, up by 1.31%.