Remain In Accumulation Mode And Focus On Quality Stocks

Mumbai, August 16:  The benchmark indices in Indian markets experienced narrow movement during the trading week concluded on last Friday. It ended lower on 3 out of the 5 trading sessions. Nifty and Sensex ended lower with a minor loss of 0.3-0.4 per cent respectively on a weekly basis. Markets ended marginally lower for the week despite upbeat global cues. Profit booking emerged at higher levels, triggered by weak macroeconomic data and concerns over rising coronavirus cases. Nifty50 closed the week at 11,178.40.    

However, the trading activity spilled to the broader market as mid-cap and small-cap indices outperformed the main measures. NSE Midcap and Smallcap indices gained by 2.2-2.3 per cent respectively. Market breadth remained in favour of the bulls with 3 shares advancing for every 2 declining shares.

Among the sectoral indices, capital goods gained by 6.3 per cent followed by media up by 4.8 per cent and metals up 3.8 per cent. Telecom was the biggest loser down by over 4 per cent as it was weighed down by the ongoing hearing on AGR case in the Supreme Court during the week. The apex court is yet to give its ruling on the matter.

Among Nifty 100 stocks Indigo gained by ~21 per cent ahead of its QIP as its market share surged to 60 percent amid subdued traffic. Motherson Sumi surged ~19 per cent on expectations of revenue recovery and lower losses at its green-field plants. Divis Lab at +11 per cent was the other major gainer. Among the losers Container Corp fell 16.7 per cent as the Ministry of Railways raised a demand of Rs 777 crore as land license fees which could delay its divestment. Bandhan Bank, Hindustan Zinc and Bharti Airtel fell in the range of 5.7-9 per cent.

Vinod Nair, Head of Research at Geojit Financial Services, said, “Equity markets have run up globally, mainly on the back of the earnings results and related commentary. Focus is now slowly shifting to the macro numbers and investors are focusing on any sustainable green shoots of recovery, especially in the hard-hit sectors. The week ahead for the global markets will be shaped by the outcome of US-China meeting, and with Indian markets increasingly in sync with global cues, this could have an impact on the opening days of the week.” 

Some strange things are happening during the pandemic. The secondary market is witnessing a firm trend in stock prices on the back of deluge of liquidity. The primary market too is witnessing and reacting to ample liquidity in the system. The primary market has witnessed hectic fund raising, from banking sector companies (banks) in particular.  It is reported that the year 2020 will emerge as the best year on record for share sales by corporate. As an unusual occurrence, public sector lenders have also laid out plans to access secondary markets for capital to shore up their liquidity levels in case of any contingencies. 

However, this may suck the liquidity from the secondary market. The narrowed down movement during the last trading week may be an indication of this. 

Nirali Shah, Senior Research Analyst, SamcoSecurities, while pointing out towards this possibility, said, “But given the buoyancy and vast amounts of fund raising, markets seem to be trading near rocky waters. Taking clues from rise in F&O ban list, the list too advocates dangers going ahead. Since we are in a perilous zone, traders are advised to ride the tide with caution until it turns.”

Retail investors seem to be smarter this time around as they continue to sell equity, busting the myth of them buying high and selling at lower levels. They have also increased exposure to debt mutual funds in these euphoric times and reduced their exposure to equity mutual funds. 

Meanwhile, FPIs have changed their stance and have become net buyers in Indian equity space in August. FPIs bought equities worth $2.5 billion over the past five trading sessions while DIIs sold $503 million worth of equity in the same period. Only time will tell who wins the battle between FPIs and retail investors. 

In fact, there could be sectoral rotations with sectors such as Infra and NBFCs witnessing an inflow of money while defensives such as FMCG, IT would remain under pressure. Mid and small caps could experience a final bout of up-move while the benchmark indices might face some pressure.

Earnings performance of second quarter would be closely watched to understand visibility in corporate earnings and if the momentum sustains, market may witness new highs, else sharp correction going ahead may be experienced, odds of which are higher, Shah opined.

Sanjeev Zarbade, VP PCG Research, Kotak Securities, said, “As we move towards the end of the earnings season, the focus would move back to domestic developments on Covid-19 and strength of economic recovery after lockdown.”

What do technicals indicate?

On commodities, gold and silver experienced a huge sell-off amid the optimism last week. Despite, the fresh stimulus from all quarters these precious metals saw a dip of 5-15 per cent. Similar sell-offs in equity may be witnessed too. It is understood that markets may have registered tops and any weakness may indicate a possibility of a sell-off in equity. By the close of the last trading week, Nifty50 turned red indicating weakness and a retest of 10,900 could be possible, if the downward momentum builds further. 

Shah said, “On the upside resistance is placed at 11,380, however, a downside break of 10,900 will suggest reversal of uptrend and high possibility of sharp correction thereafter. Hence, going ahead investors should remain cautious. It is best if traders and investors brace up their disciplinary skills and opt for a stock specific approach during these risky times.”

Deepak Jasani, Head Retail Research, HDFC Securitiessaid,“Technically, with the Nifty breaking down from the trading range of the previous three trading sessions, the short-term trend has now turned down. A close below 11,074 could result in acceleration in downtrend. On upside, pullback rallies could find resistance at 11,256-11,300. Nifty seems caught up in a range. Encouraging payrolls data this evening from the US could enable it to breach the near term high of 11,341.

The closing of the week was very weak as the Index has negatively engulfed its last four days of range bound movement, with the loss of 122 points at 11,178 level. 

Kunal Parar, Senior Research Analyst, Choice Broking said, “Nifty has given its closing below 11,200, which shows some concern however, the index has strong support at its 21 days moving average from where a bounce back can be expected. The index has strong support at its lower band of broadening rising wedge formation, which again indicates a bounce back movement. On a weekly chart, the index has been trading in a range bound movement between the range of 10,800 to 11,400 since the last four weeks which suggests a range bound movement until we get either side breakout. So as per the daily chart structure, the index has strong support at 11,100 if the index breaks this support then further downside would be there up to the level of 10,900-10,800 while upside resistance comes at 11450.”

Nair further said, any indication of another stimulus package by the government will benefit the markets. Focus will remain on earnings visibility and with liquidity remaining high, any corrections may be bought into. He advices investors to remain in accumulation mode and focus on quality stocks.