Bullish Theme to Continue; Rich Stocks May Face Bumps

As was expected, the Indian stock markets moved in a narrow range during the past truncated week and ahead of the long, three days week-end, but ended with marginal gains. On a weekly basis, Nifty closed higher for the third consecutive week and gained 0.26 per cent to close at 17,369.25.

After a strong bullish week previously, last week Nifty traded in a small range. It consolidated between 17,430 and 17,250. Nifty IT, Nifty Auto and Nifty Bank gave a mild correction, while Nifty FMGC and Nifty PSE close mildly positive, during the week gone by.

Experts are of the view that the swift rise in benchmark indices on the back of some of the large caps may take some breather during next week as they seem to have run into some sort of resistance during the past week.

Nifty 50 index, after the recent sharp rise, has been witnessing a bit of a slowdown around the key rising resistance line. “Major global indices also seem to be reverting to their short-term mean. So, a mild pullback in Nifty towards short-term averages cannot be ruled out”, Samco Securities said in its research note.

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, “There is a slight risk-off mode in global markets during the last few days and this has impacted the bullish sentiments in India too. Many experts feel that there can be a correction in the large caps that have been leading the rally this year. So, part of the fresh money is now moving into new areas like PSU banks. But this is likely to be a short-term trend.”

Gaurav Udani, Founder & CEO, Thincredblu Securities said, “On closing above 17,450, Nifty may test levels of 17,500 and 17,550. Nifty is currently in its Impulse wave as per Elliott wave theory and will continue making new highs for a few weeks from here. Overall, the trend in Nifty remains bullish and we may see a new all-time high in the next few trading sessions.”

Emerging Asian markets have done well over the last fortnight with India leading the pack. The relative price valuations of Asian equities compared with their global peers are at a near 14-month low. According to Refinitiv data, the MSCI Asia-Pacific index’s forward 12-month P/E ratio stood at 14.9 compared with the MSCI World’s P/E ratio of 18.46. That near 20 per cent valuation discount is the highest in 14-months.

Following a rapid rally above 17,400, markets may face small bumps on the road in the coming week. The core US inflation data may cause whipsaws in the markets in case it strikes a sensitive chord of taper talks. Though the much-awaited US job data fell below market estimate, it gave relief to the market in hopes of continued economic support by the Fed.

European shares traded with cuts ahead of the European Central Bank’s policy meeting where talks regarding the tapering of asset purchase program are likely to take place in the backdrop of rising eurozone inflation.

The Indian inflation data for August will be a key data point that the market awaits in the coming week. “Retail inflation is expected to remain high in line with the July inflation rate of 5.59 per cent while wholesale inflation is expected to ease from the previous level of 11.16 per cent”, said Vinod Nair, Head of Research, at Geojit Financial Services.

Hemant Kanawala, Head – Equity, Kotak Mahindra Life Insurance Co said, “Increasing covid cases across the globe also added to the market worries. While national Covid case numbers remain low, there are pockets of localised outbreaks that demand caution in light of upcoming festive season”.

Notwithstanding the impact of Covid, the economic outlook continues to remain constructive with the recovery remaining on track and policy support being abundant.

Kantawala however, said, “India’s domestic and external dynamics remain strong with both government and the RBI continuing to take appropriate policy decisions which will continue to act as a tailwind to economic recovery as well as equity markets performance.”

However, the overall bullish theme is expected to continue with profit-taking in overpriced stock-specific counters. As a result, investors must continue to invest in fundamentally strong stocks for the long term, Samco note said.