Mumbai, August 24: Markets managed to end with decent gains amid consolidation bias in the passing week ended on Friday. The benchmark indices closed the previous week with a gain of 1.5 per cent. The Nifty ended at 11,371.60, while the Sensex closed the week at 38,434.72.
The market is expected to keep the adjusted gross revenue (AGR) dues payment hearing in the Supreme Court and news related to India-China tension at LAC on the participants’ radar. Also, updates related to COVID-19 will be closely watched. Amid all, volatility is expected to remain high due to scheduled August F&O expiry that contracts on Thursday (August 27).
Vinod Nair, head (Research), Geojit Financial Services, said, “Indian markets are showing strong correlation with the global markets. The global markets are currently running on hope and liquidity. The expectation of economic activity picking up and earning normalising will have to translate into reality or at least show signs of it, for the markets to sustain the current momentum.”
During the week, broader markets continued to rise with momentum, whereas major large-cap indices consolidated are taking cues from global markets.
Indian markets are seen mimicking the US indices from a directional perspective rather than velocity. It can be aptly deduced that countries such as the US and Japan, where the government revival packages were nearly US dollar 1-2 trillion, their domestic markets have climbed near their yearly highs, and countries where the stimulus packages were comparatively trivial, markets have fallen behind and are still 18-20 per cent away from their yearly highs.
Conversely, Indian market with a comparatively smaller economic package and weaker economic fundamentals is dancing to the tunes of global optimism.
Nirali Shah, senior research analyst, Samco Securities, said, “This upbeat sentiment unaccompanied by any structured economic revival policies point-blank suggests limiting disparity in risk-reward ratio favoring the bulls and investors should not get carried away by this illusory optimism.”
Domestic institutional Investors (DIIs) remained faithful and have followed the super investor Warren Buffett’s philosophy: “Be fearful when others are greedy and greedy when others are fearful”. DIIs bought during March-April lows are currently seen selling in August 2020 when markets are showing signs of greediness. The upbeat market mood has turned them cautious. On the contrary, frightened FPIs were seen selling on the way down in March-April 2020 and have turned net buyers although mildly since the last few weeks in the secondary market.
Abhishek Bansal, chairman, Abans Group, said, “FPIs are increasing their bets on the Indian markets in the aftermath of a drastic outflow in March 2020. In August alone, FPIs have invested nearly Rs. 40,262 crore (till August 21) in equities, which is the highest one-month inflow in the calendar year 2020.”
It seems that the beleaguered central government is taking advantage of the bullish trend in the market. The centre is planning to tap the market to revive the government's kitty by raising small ticket amounts in the form of FPOs. The government is seriously considering to materialise the current optimism in the market and is looking to inject the firepower needed for the ailing economy.
FPOs in IRCTC and Hindustan Aeronautics may lead to a pause in the rally in PSU stocks but D-Street is expected to witness dozens of FPOs from PSUs to fill the gap in the government’s falling revenue.
“Investors are advised to remain on the sidelines while investing in any PSU given their evergreen supply overhang. Given that domestic bourses have suggested inkling of mirroring US markets, any clues on the US presidential elections in these 73 days to the D-Day will impact Indian bourses. Investors should abstain from deploying fresh monies and even consider booking profits at higher levels. It is time to be cautious and consider shoring up liquidity on a portfolio level,” Shah said.
During the past week, Indian markets reacted initially to the weak US retail sales and continued deadlock between the Republicans and Democrats on the aid package.
The release of US Fed minutes on Wednesday echoed earlier warnings by Fed Chair Jerome Powell about the significant downside risks to the economy, which remains tethered to the pandemic’s trajectory. The policy committee said that the swift rebound on employment seen in May and June had likely slowed and that additional “substantial improvement” in the labour market would hinge on a “broad and sustained” reopening of business activity. The Fed also ruled out for now more dovish monetary policy measures such as yield-curve control.
Further, the Nifty small-cap index was up 5.5 per cent, while the mid-cap index was up 3.9 per cent. Both of these outperformed the Nifty suggesting outperformance by the broader markets.
Sundar Sanmukani, fundamental head, Choice Broking, said, “Broader indices continue to witness robust buying interest amid valuation comforts and emerging signs of demand recovery due to the unlocking economy. Though the market also witnessed a sell-off on Thursday, due to the US Fed’s cautious economic outlook, overall the market ended higher in the fourth session of the week.”
Technically, with the Nifty ending higher for the week, traders will need to watch if it can hold above the crucial trend reversal levels of 11178 in the coming week for the uptrend to continue – else, the current uptrend would reverse and we could be headed lower.
“However the fact that Nifty has made a recent high is encouraging. We will continue to see stock specific moves based on micro developments,” Deepak Jasani, head (Retail Research), HDFC Securities, said.
Kunal Parar, senior research analyst, Choice Broking, expressed a different opinion. He said, “If we talk about the moving average perspective, the index has been trading above its 21 days moving average that shows a positive trend for the time being. Apart from this technical term, it seems that the market is waiting for some event after which we may see a northward breakout based on which the index may touch its upper level of 11600-11800. Another point to consider is that the Indian VIX is trading below 21 level, which provides some cushion to the index based on which the index may give good spurt in the upcoming trading sessions.”
Though Nifty has failed to gain much in the last five weeks, the buying interest on every dip shows that bulls are not in the mood to give up easily.
Ajit Mishra, VP (Research) Religare Broking, said, “Apart from global cues, the performance of the banking pack is also influencing the market tone these days as other sectors are in consolidation mode. We suggest preferring stocks from private banking, energy and FMCG space for fresh buying.”