Market may Attract Profit-booking at Higher Level

It seems that the consolidation phase for the Indian stock market has come to an end. After staying in consolidation mode for more than three months, following the presentation of the Union Budget in February, India’s premier benchmark Nifty not only crossed its previous all-time high level of 15,432 in the last session of the previous week, scaled a new peak of 15,469 and closed above previous peak at 15,436.

This has heightened optimism in the market that going ahead, Nifty will scale newer peaks.

The S&P Sensex, however, is still some miles away from its previous peak of 52,517 attained on February 16, 2021. It ended the week at 51,423. Both the benchmarks ended the week with a gain of over 1.72 per cent, for the second week in a row.

It will be interesting for trading as the week beginning Monday is full of events that the markets will be taking cues from it. On the macroeconomic front, we have GDP data for the first quarter, core sector data and Markit Manufacturing and Services PMI data. Besides, monthly auto sales numbers would also start pouring in from June 1. Importantly, the Reserve Bank of India has its Monetary Policy Committee (MPC) review meeting scheduled for this week.

The return of the upbeat mood in the market is on the back of two reasons. The continuous drop in the Covid cases in India and faster-than-expected recovery in the western markets due to rapid pace of vaccination, has improved the sentiment. Another reason is expectation of multi-trillion dollars of stimulus from the Joe Biden administration has led to optimism. Locally, the news of the Centre likely to announce the second round of relief measures for the industries suffering from the second wave has also aided the sentiment.

Asian and European markets mostly rose on Friday to end a broadly upbeat week. Asian stock markets rose on Friday, powered by encouraging signs that the US economic recovery from the pandemic is gaining momentum. The economic sentiment is rising in Eurozone as well and the prospect of further stimulus in the US have boosted the mood in the markets on Friday, helping European stocks inch towards record highs.

Deepak Jasani, Head of Retail Research, HDFC Securities said, “A rally in Asia puts global equities on track for a seventh day of gains on Friday (and fourth straight month of gains) as investors bet that the US will lead the world out of the Covid-19 pandemic, with the focus turning to a multi-trillion dollar spending boost by the Biden administration.”

The US initial jobless claims announced on May 27 slid to 406,000 in the week ended May 22, a decrease of 38,000 from the previous week, indicating the health of the recovery in the world’s largest economy. Investors are also monitoring negotiations in Washington over an infrastructure spending package aimed at further bolstering the recovery. The market is also keeping tabs on inflation data, as the Fed has said it will let it run hotter.

Vinod Nair, Head of Research at Geojit Financial Services, said, “Expectations of state-wise unlocking due to declining Covid-19 cases are giving hopes of economic recovery. As the result of a decline in the covid second wave infection curve, the plausibility of further re-opening of the economy has enlarged and consequently the market is expected to gain further momentum surpassing previous highs.”

Dr Joseph Thomas, Head of Research, Emkay Wealth Management said, “There is also a renewed vigour in the massive vaccination efforts, as many state governments have started inviting bids to supply vaccines to ensure universal immunisation, and as the realisation that only such efforts would ultimately kill the virus is taking roots”.

However, rising fuel prices domestically, which crossed Rs 100-mark for petrol in many centres, may pose a threat to the recovery in economy as well as the bull market. The hike in petrol prices follows a 14-day streak, as OMCs kept revising fuel prices upwards across India. The hikes are mostly in line with the gradual rise in global oil prices as Brent Crude prices touched $70 per barrel. Overall global bullishness and demand are keeping oil prices at current levels.

“But investors need to be cautious as the OPEC meeting slated for June 1 will dictate the supply, production and price indications going ahead,” said Nirali Shah, Head of Research, Samco Securities.

Nifty will face hiccups on the way but the longer bull rally is here to stay as the digital, infra, consumption and real estate boom will continue undeterred. A sustenance of this boom will drive Indian markets from a $3 trillion market capitalisation (M-cap) to the next level in line with the developed nations such as China with a M-Cap of $ 11.4 trillion and the US with M-Cap of $ 47 trillion. “The secular story is intact but in near term, the excesses in valuation need to get corrected for a healthy next leg up”, Shah said.

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, said, “India VIX (volatility index) fell down by 12.59 per cent from 19.91 to 17.40 levels - which is at lowest levels of last 65 weeks since February 2020 along with its biggest single day drop since 25th November 2020. Falling VIX is likely to extend the bullish market momentum towards new high territory”.

Nifty after closing at the all-time high could consolidate the recent gains before inching up higher.

Vishal Wagh, Research Head Bonanza Portfolio, said, “Broader indices may continue to rally. The reversal for Nifty is expected only below 15,150 levels on a closing basis. The Banking, Power, PSU will be in focus. Pharma may also participate. Profit booking in the metal sector may continue.”

US markets are shut on Monday and hence Indian markets will not have their performance to track over Monday and Tuesday. Nifty could over the next few days rise towards 15,600 while the 15,300-15,327 band could offer support.

The earning season for the fourth quarter of FY21 has entered its last leg. Companies like ITC, Aurobindo Pharma, Bharat Forge, PVR and Motherson Sumi will announce their numbers along with several others during the week.