Corporate Earnings, Global COVID Cues To Dictate The Market

Benchmark indices post lowest gains in last five weeks; Rules at four months high

After rising for the fifth consecutive week on Friday last, its longest winning streak from April 2019, there seems to be an indication that benchmark indices in the stock market are heading towards a stage where it will take a pause. The indication to this respect emerges from the gradual decline in its speed of adding points. Though the benchmark indices ended in positive and have touched its four months’ highest level, its speed of moving upwards has slowed down considerably. 

For the first time in last five weeks, the gains, Nifty has posted on weekly basis, have come down to 1.24 per cent, lowest in last five weeks. Earlier during the period of June 19-26, Nifty gained 1.35 per cent during the trading week. On Friday last, the Sensex and Nifty posted gains of 548 points and 162 points (1.5 per cent each to close at 37,020 and 10,902 respectively.

Vinod Nair, Head of Research, Geojit Financial Services said, "The markets globally are banking on continued liquidity to ensure that the recent momentum seen in the markets does not stall. Indian stocks are seeing earnings specific moves while the ever present possibility of another lockdown has done little to affect the sentiment."

With no major event, the on-going earnings season and global cues will continue to dictate the market trend. Besides, the progress of monsoon will also be closely watched.

 Siddhartha Khemka, Head-Retail Research, Motilal Oswal Financial Services said, “We would continue witnessing stock specific action as the earnings season unfolds. Though the near term momentum looks positive, we would advise traders to be cautious, given flaring US-China trade relations, persistent rise in virus cases and implementation of fresh lockdowns in parts of the country. On the other hand we would advise investors to continue with their defensive portfolio approach.”

 Ajit Mishra, VP Research, Religare Broking said, “The recent surge was led by better than expected earnings from IT majors but the upside seems capped now as Nifty has again reached closer to the resistance zone of 11,000. Traders should maintain extra caution in the selection of stocks and prefer hedged trades. Markets are braving all the storms and gradually inching higher however the participation is largely limited to a handful of index majors.”

These gains came despite negative global cues, rising global coronavirus cases, negative flows from FPIs and DIIs and continued tensions between the US and China. Broader markets underperformed as the gains in midcaps and small-caps were lower. 

Deepak Jasani, Head-Retail Research, HDFC Securities, said, “Technically, with the Nifty rebounding from close to the 200-day EMA and moving higher to close at a 4 month high, the uptrend looks set to continue next week. The 200 day EMA has acted as a savior and helped the market to remain in an uptrend. The Nifty could now attempt to target the next major intermediate resistance at 11433. On the downside crucial supports to watch for resumption of weakness are at 10562.”

The BFSI sector is most sought after in the recent times. This is because of scores of concessions and relaxations in the form of moratorium and collateral free bank guarantee that have been extended to this sector by the regulator the Reserve Bank of India (RBI) and the Government. It is expected that Q1FY21 may not see much pain from the financial space since the real dent will only be felt post the moratorium ends. Hence, markets are expected to flex their muscles in a range bound manner.  

In this backdrop, Jimeet Modi, Founder & CEO SamcoGroup said, “Going ahead, intraday traders can follow a buy on dips strategy in the IT sector and for companies coming out with bad earnings performance. Investors are still advised to stay on the sidelines and wait for market dips before investing.”

Post the earning season that comes to an end with close of the month, the next trigger for the market will be cues from the next Monetary Policy Meeting (MPC) of the RBI schedule in the first week of August. India’s retail inflation, measured by Consumer Price Index (CPI), unexpectedly clogged 6.09 per cent in June due to temporary dent on the supply side. This may force RBI to rethink its stance for any further rate cut in its August MPC meeting. This will play its significant role in deciding future course of market action, dealers said.