Rush for Booking Profit in Equity Market Likely This Week

After registering new peak in the past trading week, the four-week winning streak for the benchmark indices came to an end. Both Nifty and Sensex registered fresh all-time highs of 15,901.60 and 52,869.51. Nifty closed the week at 15,683 – down 0.74 per cent – and Sensex closed 0.25 per cent lower at 52,344.45 on Friday. What is more important that the broader market outperformed the benchmark indices on the down side, indicating the profit booking likely to continue at the bourses in coming week.

Vishal Wagh, Research Head, Bonanza Portfolio, said, “Both Nifty midcaps and Nifty small-cap indices were outperforming the major indices since April 2020 which indicated that the last rally that began last year in mod and small space was broad based and the value gaps between mid and small-caps and large-cap stocks has been narrowed. The broader market is now ready for healthy correction as both indices show tiredness on the charts.”

The weakness in broader market was clearly visible last week. The broader indices have outperformed benchmarks by a wider margin last week. BSE Small cap 250 and Nifty Small cap 250 indices were down by 1.51 per cent and 1.96 per cent, while BSE Midcap 150 and NSE Midcap 150 were ended lower by 2.89 per cent and 2.58 per cent respectively. The losses in broader BSE -500 and Nifty-500, however were capped and both ended 1.33 per cent lower.

An interesting aspect of the market is that despite alternate bouts of buying and selling witnessed at the bourses, resulting into volatility on both sides throughout the week, the India Volatility Index (India VIX) has largely remained unaffected. It gained 4.95 per cent only to end at 14.8 levels, compared to 14.10 level, a week ago.

Technically, post the strong uptrend rally, the Nifty and the Sensex has formed Hammer candlestick pattern which clearly indicates indecisiveness between bulls and bears. However, the medium-term texture of the benchmark indices is still bullish and likely to continue in the short run. Panic selling has been absorbed well so far in the markets and local investors have taken these sell-offs as an opportunity to add to their positions. Absence of a sharp selloff in global markets is helping keep sentiments steady here.

Shrikant Chouhan, Executive VP, Equity Technical Research, Kotak Securities, is of the view that post strong uptrend rally, the market is hovering in the range of 15,450 to 15,900 for Nifty and 51,900-52,850 levels for Sensex. “The texture of the chart suggests 15,400/51,800 should be the sacrosanct level for the bulls and as long as it trades above the same, uptrend is likely to continue up to 15,800-15,900/52,600-52,850 levels,” he said.

The Crude oil is ready for a big spurt above $ 70 and the US Dollar is getting stronger against Indian Rupee (INR). Even USD-INR weekly chart is showing the strength. If it sustains above 73.60 it will likely to retest 75-76 zone in a coming couple of weeks. The sum total of all the above is that in the coming few weeks markets may go in for correction, Wagh opined.

Going forward scores of IPOs lined up will also suck up liquidity from the secondary market and that could also play crucial role in getting correction gathering steam, market experts observed.

Nirali Shah, Head of Equity Research, Samco Securities, said, “Markets are expected to witness some profit booking to a broad range-bound correction as news toggle between vaccinations and the new delta variant causing the third wave. Any form of credit incentive to supplement health care infrastructure would be good news for equities.”

With no major event, global cues will continue to dictate the market trend. On the domestic front, the progress of the monsoon and updates on the vaccination drive will be closely watched.

Ajit Mishra, VP - Research, Religare Broking, said, “Indications are in the favour of further consolidation in the index but the bias would remain on the positive side till Nifty holds above 15,400. Investors should maintain their focus on the selection of stocks and use dips to gradually accumulate the fundamentally sound counters.”