The next two weeks are crucial, not only for the Indian markets but for all the stock markets across the globe. The voters in the United States (USA) will vote to select their new President on November 3. Delays in announcing poll results will cause uncertainty in markets across the world.
Going ahead, markets are likely to remain under pressure till the overhang of U.S. elections and the surging cases of COVID-19 in Europe continues. Volatility is on the rise for the last four consecutive weeks in the domestic market. It needs to cool down for market stability.
Indian benchmark indices, namely Nifty and the Sensex, have remained extremely volatile in October and have shed 4.50 per cent and 5.13 per cent, respectively. This volatility is expected to continue further ahead of Diwali, market participants said.
Last week, global and domestic markets were caught on the back foot on news of stringent lockdowns in Germany, France, and other parts of Europe due to rising COVID cases and uncertainty due to U.S. elections. Sentiments took a U-turn mid-week, and markets turned from neutral to negative.
Global stock markets plummeted mid-week on the resurgence of COVID cases. The lockdowns this time are likely to be as stringent as the previous ones. It will be a big jolt in the subsequent quarters for economies struggling to keep their feet on the ground amidst GDP contractions and inflationary pressures.
Nirali Shah, Senior Research Analyst, Samco Securities, said, “In such a scenario, market participants should be cautious and remain vigilant on such possible bouts of severe outbreaks as Indian markets more often than not mirror global indices in times of uncertainty. Investors should remain cautiously optimistic in the current uncertain environment”.
Domestic markets are expected to imitate their global counterparts in the coming week, especially since the U.S. election is a major event. Until then, bourses could remain lackadaisical. No considerable delivery-based buying or selling is emerging at current levels, suggesting markets would remain range-bound.
Shah said, “Buyers could then look for entry points at lower levels in anticipation of sudden knee jerk reactions. In the banking space, private sector appears well staged to be a part of the next rally as they have managed to cut their deposit rates at a higher pace than their lending rates when compared to their PSU peers”.
Sectoral indices remained under pressure, while auto was a major loss-making sector amid concerns of sustainability of demand post-festival season.
Vinod Nair, Head of Research at Geojit Financial Services, said, “Markets will remain under pressure going forward as political developments related to the U.S. election will act as an overhang amidst higher volatility. The Supreme court is expected to pass its verdict next week on the much-awaited moratorium case, which is expected to be in favour of the banking sector. However, the possibility of a short-term correction due to increasing global uncertainties is high.”
The Finance Minister stated that India is witnessing a pick-up in consumer demand. Rising GST collection corroborated this for October, which was the highest among the last eight months and crossed the ₹1 lakh crore mark for the first time since February 2020. Also, there is optimism that the country will be the fastest growing economy in the next year.
Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd, said, “Technically too, Nifty has been a volatile indicating tug of war between the bulls and bears. It has to cross and hold above 11750 to get the bull’s grip for a bounce towards 11900-12000, while support exists at 11550-11500. At 18x FY22 earnings, we believe markets are now trading closer to its long-period averages and building in a fair amount of earnings recovery in FY22.
For a durable and sustained re-rating, we believe corporate earnings must revive sustainably and the COVID-19 pandemic subsides further. Any additional stimulus announcement by the Indian government could improve market sentiments in the near term.”
Satish Kumar, a Research Analyst at Choice Broking, said, “Other key events, besides U.S. elections for next week include PMI data and auto sales numbers. Reliance Industries Ltd’s (RIL) Q2 result declared post-market closing and ICICI result, as well as GST collection figures released on Saturday, will also have its impact seen in Monday’s morning trades”.
“Investors are advised to keep their shopping list ready for the next week and embrace buy on dips strategy in frontline quality stocks,” Shah said.