Friday, October 30

Market likely to continue on a zigzag course till the yearend

The domestic equity market corrected sharply midway through the week gone by on renewed fear of a spike in Covid-19 cases and fresh restrictions in some of the advanced countries.
With the US Election Day just three weeks away, global markets have also slipped into a wait-and-watch mode. Both political parties in the US have substantive but diametrically opposite ideologies and policies to run economic affairs, which the markets are waiting to discount.

In any case, there are fears that the election this time around may bring with it a prolonged litigation over the balloting system. And this will eventually delay the second round of stimulus, further postponing the next wave of liquidity which may negatively impact global markets.

Indian markets too might witness profit booking in the near term, and move sideways. By this year-end, the domestic bourses are unlikely to witness fresh highs and a strong bout of profit booking may emerge instead. If this line of events turns out to be true, it will throw up good buying opportunity for investors, who are patiently waiting to accumulate quality stocks after a healthy correction.

More so, the buzz around IPOs now seems to be fizzling out, since the listing of two much-hyped IPOs – UTI AMC and Mazagon Docks – turned out to be tepid. This dented market sentiment, which turned neutral from bullish. Given the further deterioration in global macros and micros, the sentiment can now turn bearish till the beginning of the New Year.

In addition to this, there seems to be lack of support from domestic institutional investors (DIIs), which have rolled over their selling spree in October. All these factors do not bode well for the domestic market.

Event of the Week

The government tried incentivize consumer spending to prop up lacklustre economic conditions through a slew of measures before the festive season. The government unveiled an LTC concession scheme and other sops for a large army of government employees to stimulate consumer spending.

Whether this petty booster will move the consumerism needle or not will have to be seen, but unfortunately the booster is being seen to be quite small and negligible compared with the mammoth size of the economy. And this may not strike the right chord in the market as a sentiment booster.

Technical Outlook

Nifty50 posted another big bearish candle during the week, which indicated that the bulls have become tired and are unable to lift the index further. The non-stop market rally for more than 10 days can be attributed to the highly optimistic herd behaviour, as majority of the participants were on the long side and hardly anyone was left to be long.

So, the market moved in only one direction as there was no buyer left which it was down. An additional boost from the global indices reflecting fears of a second wave of lockdowns turned out to be another negative trigger. However, we are still trading within the rising channel on the weekly chart, and need a close below the channel support to confirm the end of the bullish trend.

Traders are advised to maintain a cautious outlook going forward and be watchful of the market’s reaction to the channel support. Support and resistance levels in the short term are placed at 11,300 and 11,900 levels.

Expectations for the Week

The market will be looking at important earnings in the coming week from bellwethers such as HDFC Life, Avenue Supermarts, Britannia and HUL, to name a few. The earnings numbers and management commentaries will guide market participants on the pace of recovery in the formal economy after the easing of restrictions. Select pockets – especially hotels, travel and tourism – are yet to recover because of their inherent disadvantages in being able to operate amid lockdowns, and hence, their earnings are expected to be muted. But as stock prices have already rallied in the recent past, selling pressure is likely to emerge in these sectors.

The market may also witness a sectoral rotation and is likely to remain rangebound. Profit booking may emerge on some counters at higher levels. Overbought stocks should be avoided completely and oversold ones can be considered for an upside over the medium term.

Investors are advised to remain patient and wait for a serious correction before investing in this market. Nifty50 closed the week at 11,762, down 1.3 per cent.

Credit: Stocks-Markets-Economic Times

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