Market-Ahead - Bullish Momentum Expected To Spill Over Next Week

The new decade of 2021-2030 and the new year of the decade has begun on the hopes of optimism as India’s benchmark index Nifty-50 closed above 14,000 level at the close of last week. The bullish momentum continued throughout the week and it is expected to spill over the next week as well as the market environment continue to remain conducive. 

Nifty50 closed the week at 14,018.5, up by 1.96 per cent. It is almost eight weeks now that markets have posted weekly gains consistently factoring in all the discrepancies including those prevailing on the fundamental front. The optimism of the firm trend to continue in the market stems from the fact that even after expiry of monthly and quarterly F&O series, every sector of the market ended in the green. Last week’s gains were led by PSU Banks, Commodities and Real Estate stocks.  

The trading week ended on the first day of the new year and saw the market inching higher at new peaks on a daily basis. The domestic market followed the global trend and development to roll out COVID vaccine in India. The European market, which revolved around the post-Brexit deal, started on a strong footing, but lost its momentum towards the end of the week, on reports regarding an increased tariff on EU products by the United States. Besides, participants also took note of the beginning of the vaccine drive in various parts of the world including India.  

It was a great week for the market as Foreign Portfolio Investors (FPIs) poured in over Rs 7,000 crore in the cash segment. This was in spite of most of them enjoying their Christmas holidays. The market moved upward due to weakness in the dollar index and also, the stimulus package received approval from the Republicans in the US. The broader indices also witnessed healthy traction as both the Midcap and Small-cap index ended higher by 3 per cent and 3.8 per cent respectively, outperforming benchmark indices. 

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities said, “Last week, we were of the view that if the Nifty closes at the level of 13,900 then it would continue to move upward and this week, the Nifty closed above the same.”

The movement in the benchmark lacked decisiveness last week and we may see some profit-taking or consolidation ahead. However, going ahead, the market may not show the same level of exuberance that we saw in 2020 as they have already moved ahead of its fundamentals and all the negatives have been priced in. This year (in 2021) there are fair chances of (economic) reality meeting the real (market) situation with the beginning of the new financial year from April onwards. 

In the first quarter of 2021, exuberance may continue for a couple of reasons. The liquidity situation is expected to maintain the status quo. The transition of power in the US from Republicans to Democrat led by President elect Joe Biden is expected to take place smoothly. The unveiling of the earning season from next week, with the result from the Tata Group flagship company TCS (on January 8), will set the tone of the domestic market. Once the earning season is halfway, the budgetary expectations will take-over and begin to drive the market.

The joy of the secondary market is seen being spilled over to the primary market too. In less than two weeks, the third IPO listing in the name of Antony Waste Handling, helped investors to gain substantial profit on the listing day. It made its debut at a 30 per cent premium to its issue price of Rs 315. 

Such IPO listings with considerable premium have strengthened confidence of the issuers in the primary market and may increase the number of issuers including the central government, that may firm up their plans to raise money from the capital market. However, the beginning of the IPO party may weigh adverse on the secondary market uptrend, as this will suck away the liquidity, which has proved to be much necessary oxygen for the rally in the secondary market.

The index has formed a breakout continuation formation and the texture of the chart suggests an uptrend likely to continue in the near term. However, previously Nifty made a gravestone Doji and spinning top pattern, which are signs of short-term indecisiveness. The low point of Doji pattern ie. 13,860 can be watched as immediate support and any break below the same can be taken as a cautionary sign for mild profit booking as the market is sitting on heavy gains. 

Chouhan said, “We can expect further upside activity towards the 14,300 or 14,400 levels. On the downside, the Nifty would find big support between 13,800 and 13,700. The focus should be on commodities, technology and NBFCs.”

The trend in the market will be based on the upcoming corporate earnings release for the 3rd quarter. The key events on the economic front will be - the Markit Manufacturing PMI and Services PMI data on January 4 and January 6 respectively. 

IT and banking stocks will be in the spotlight as major companies in these sectors are expected to kickstart the result season in the coming days. “Improvements in corporate earnings in the upcoming result season will keep the market buoyant", said Vinod Nair, Head of Research at Geojit Financial Services."

Experts are of the view that traders would continue to find opportunities across the sectors and hence the stock selection would be the key to succeed. In this context, Ajit Mishra, VP - Research, Religare Broking advised the traders, “It’s prudent to keep the leveraged positions partially hedged, to minimise the risk of knee-jerk reaction like we saw in mid-December”.

With the result season advancing, the market is expected to be influenced by the budgetary expectations and how they are met, rather than buzzing quarterly performance. Nirali Shah, Senior Research Analyst, Samco Securities said, “Investors are advised to accumulate quality businesses in IT, real estate and cyclical sectors”.