Experts See an Action-Packed Week Ahead for Markets

Indian markets continued remain volatile and ended with a minor gain for the second consecutive week on Friday. The benchmark indices gained 1.3 per cent on a weekly basis with Nifty-50 ending at 14,823 and while Sensex at 49,206. The broader markets are seeing very good action due to the results season. Both the NSE Mid-Cap and BSE Small Cap indices outperformed the Nifty-50 last week.

This trend is expected to continue in the next week too and the benchmark indices – Nifty and Sensex – may test the psychological level of 15,000 and 50,000 for a brief time during the truncated trading week beginning Monday. The markets will remain closed for trading on May 13 on account of Ramazan.   

The Indian benchmarks are in the third month of consolidation and there’s still no clarity over the next directional move in the index. The market movements are posing a question mark as marketmen see complete disconnect between rising covid cases in India and markets defying the economic reality of rising cases-induced restriction challenging the economic recovery. So, the question here is, why Indian markets are not falling despite grim economic situation expected going ahead due to raging second covid wave and, instead, are maintaining the current level and adding incremental gains on a weekly basis.

The answers to these questions lie in what is happening in the West and a stellar fourth quarter performance posted by the India Inc. Other domestic factors that played its role in the market maintaining its strength includes the Met department’s forecast of normal monsoon this June and the RBI’s incentives for SMEs and MSMEs during the second Covid wave.  

Global stocks posted their first weekly gain in three weeks amid positive Chinese data and a surge in commodity prices. China’s exports grew more than expected in April as global demand remained strong, data from the General Administration of Customs shows. Chinese Exports advanced 32.3 per cent on a yearly basis in April, while economists had forecast the growth rate to ease to 24.1 per cent from 30.6 per cent posted in March. Likewise, imports surged 43.1 percent from the previous year versus the expected growth of 42.5 per cent.

Analysts said strong data from the US and China is helping global markets to remain on the higher side. Indian markets are following their global peers in tracking their strong performance. Back home, the RBI’s announcement of fresh measures last week to support the economy from the second wave of Covid has also helped the sentiment. Support from the central banks in these difficult times is seen positively by the market. The fourth quarter earnings are coming out better than expected, which is also helping stock prices to move up.

“Benchmark indices showed optimism because of other macro data as well such as GST revenue collections, which hit record highs of Rs 1.41 lakh crore in April and headline manufacturing PMI, which managed to float above the 50-mark, an expansion zone, for ninth months in a row. These factors indicate that a buoyant economic recovery is on its way. An increase in the GST revenue will also warrant reduction in fiscal deficit and larger room for expansionist measures,” said Nirali Shah, Head of Research at Samco Securities.

There are other factors that one should keep in mind while taking position in the market. Despite certain positives, a rise in Covid cases could dampen the pace of recovery and a rapid inoculation drive is the only cure to end this vicious cycle.

Deepak Jasani, Head of Retail Research, HDFC Securities cited the latest Fitch Solutions report to say that India is likely to breach its fiscal deficit target (6.8 per cent) in the financial year to March 2022 mainly due to revenue shortfall. Fitch Solutions forecast that India’s deficit will be at 8.3 per cent of the GDP for this fiscal.

The second wave of Coronavirus infections forcing localised or state-wide restrictions poses a downside risk to economic activities in the first quarter of the ongoing financial year, according to the Department of Economic Affairs (DEA). The momentum in economic recovery since the first wave has moderated in April, DEA said in its monthly newsletter.

Any aggressive selling on part of FPIs going ahead may keep markets under pressure unless the domestic players can maintain the dynamics. During the week, the FPIs sold heavily in the cash segment to the tune of Rs 5,500 crore. Shrikant Chouhan, Executive VP, Equity Technical Research at Kotak Securities said that the selling frenzy by FPIs should reverse immediately, otherwise it would minimise the upside for the market.

Shah advised investors to remain invested and increase allocation to equities on every healthy correction.

“Going by the open interest in the F&O segment, 14,000 to 15,000 is the near-term range for Nifty50. Any decisive move could take place only beyond this range,” Rusmik Oza, Executive VP, Head of Fundamental Research at Kotak Securities, said.

The rise in the BSE Metals Index is unabated as it reported gains in excess of 10 per cent last week, taking the calendar year-to-date returns to around 70 per cent. The global metal prices continue to move upward. Spot iron ore broke the $200-per-tonne mark for the first time, while copper is near its record high as demand in China picks up after a three-day holiday, Oza said.

A decisive breakout in Nifty above the 15,000 mark is critical for the resumption of the uptrend. And, it seems unlikely without the participation of the banking index, which is still struggling at higher levels. Technically, as long as Nifty trades below the lower end of the rising channel, there are chances of this rally being a bull trap, Shah said. The short-term support and resistances are now placed at 14,400 and 15,000, break on either side will dictate the short-term trend.

Chouhan said the positive part of the week is that the Nifty50 closed above the crucial resistance of 14,800. Based on it, Nifty would climb to a minimum of 15,000/15,050 levels.  However, the market would pick up the momentum, if it crosses 15,150 levels. On the downside, 14,600 and 14,500 would be major supports.

Vishal Wagh, Research Head, Bonanza Portfolio said: “Nifty is expected to conquer levels of 15,000 and it will prove that the bull market normally crosses the walls of worries. The participation from IT, Pharma and Metals may continue. Banking stock may remain sideways and NBFC may build basing formations. On the lower side, 14,400 will be the demand zone and on the higher side 15140-15160 will be the supply zone.”

The coming week is a holiday shorted one and participants will be eyeing macroeconomic data like the IIP and CPI inflation numbers on May 12 and the WPI Inflation on May 14.

“Though we’ve not seen any major impact of the Covid second wave on markets yet, the news of strict lockdown in several states may deteriorate the sentiment ahead. Amid all, participants are keeping a close watch on the vaccine drive as well,” Ajit Mishra, VP Research at Religare Broking, said.

In the next leg of earnings season, some of the prominent names like Asian Paints, Jindal Steel, Lupin, Voltas, Cipla, Dr Reddy, Escorts, L&T and Vedanta will declare their results along with several others.