Stock markets have accounted for most triggers that could have influenced share prices with the completion of earnings season for the quarter. Uncertainty over the outcome of the US presidential election seems to be clearing with each passing day. The flow of positive news is waning.
Larger investors are likely to shift their focus on economic recovery and the global Covid story. A deluge of bad news seems in-store. It could drive away foreign players in hordes and will possibly be preceded by profit-booking. A correction appears imminent unless some surprising good news arrives.
Sensing a correction, despite extensive buying support from Foreign Portfolio Investors (FPIs), benchmark indices limped northwards with minor gains last week. The Sensex and Nifty were up a dismal less than one per cent each. Dow and Nasdaq Futures couldn’t gain a figure in integer.
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The second wave of COVID-19 has hit many shores. Indian scenario is in no way satisfactory either. Delhi and a few cities of Gujarat witnessed an unexpected rise in infections.
A surge in global coronavirus cases is a cause for concern and threatens economic recovery worldwide. It has sent western authorities scurrying back to their boardrooms to decide on what’s next? Experts fear the virus spread and global sentiment may impact domestic markets too.
Global equity markets stalled last Friday following the US Treasury’s decision, according to reports, to end the emergency loan program by December end. The loan program is similar to the package announced in India. Both programs are for extending loans to SME’S (Small and Medium Enterprises) at a discount. The US Fed has been assisting municipalities and SMEs to tide over their short to medium-term liquidity concerns. The news of a decision to close the programme dealt a punch to hopes of economic recovery.
According to Nirali Shah, a senior research analyst at Samco Securities, the US Treasury’s decision made market indices nervous. Players in its domestic bourses believe it could hurt the already bleeding global economy. Coping up with Biden’s victory, the power conflict between the US Treasury Secretary and Federal Reserve might also add to the already jitteriness in its benchmark indices. The shock could traverse to Dalal Street as well.
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Expiry of the November contract in the F&O (Future and & Options) segment is due on Thursday, November 26, a factor that could keep markets volatile till almost the end of the week. The list of banned F&O stocks, growing in multiples of 10, may indicate that markets are moving around the overbought level. It is possibly exhibiting a prelude to a healthy correction.
Markets have stopped reacting positively to company-specific positive developments and have been exerting pressure on higher price levels. It is yet another indication of a correction as FPIs reduce heavy buying.
FPIs have been aggressively buying in November. They spent ₹ 92,265 crore in buying Indian equities this year till date (YTD). Almost 48 per cent of this was in November, till last Friday. Around 30 per cent of November’s inflow came in last week when markets operated only for four days. Domestic Institutional Investors (DIIS) on the other hand, were net sellers at ₹ 30,000 crore YTD.
Amidst the alternate bout of buying and selling, markets may concentrate on the lower rung stocks that missed the rally till now and are available at fair valuation compared to industry leaders.
Shah believes every rise will encounter selling in the form of profit booking. It will be beneficial for the markets which will initiate a ‘much needed healthy correction’ in the wake of stretched valuations in a handful of frontline stocks. Patiently waiting for the correction for a “buy on dips” strategy would be wise, believe experts.
“Top-quality IT and Pharma names can be accumulated at current levels,” says Shah.
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Ajit Mishra, VP - Research, Religare Broking, said, “Nifty may consolidate further next week—in the range of 12,600-13,000. The rate-sensitive pack may be in demand and select defensive sectors like FMCG and Pharma may witness some traction. Investors may focus on selecting stocks while maintaining the “buy on dips” approach”.
