The collective wisdom of Mr Market showed economic reality far ahead

This was the fifth consecutive week when the equity benchmarks delivered positive returns. However, there was a legitimate tussle between the bulls and the bears, wherein repeated efforts to attain new highs were bogged down by selling pressure from domestic institutions, which ended the trade with mild gains.
Midcaps and smallcaps were no less. They rallied 2-4% every week for five consecutive weeks. The buoyancy can be attributed mostly to the catch-up rally in the broader indices, which are trying to match their industry bellwethers. Some of the credit for this bounce can also be given to the UK government’s approval to the Pfizer-BioNTech Covid-19 vaccine, which would congruently play a significant role in the global efforts to halt the pandemic.

This excitement is leading to a near nine-month high in Brent crude prices, which have bolstered hopes of a faster-than-expected demand recovery.

The party doesn’t end here, since India’s GST collection remained above the Rs 1 lakh crore mark for the second consecutive month, as consumption picked up amid festive demand after easing of lockdown restrictions. Further, India managed to trim down its heavy trade deficit to $9.96 billion from $12.75 billion earlier, and clocked better-than-expected GDP growth with a 7.5% contraction vs a much higher 23.9% contraction in the April-June quarter, which justified the recovery. Way back at the start of the pandemic, India was at the bottom of any list among major economies in terms of macros, but has since witnessed a turnaround and is now relatively well placed on the world map.

No wonder the collective wisdom of Mr Market was far ahead and the fundamental numbers eventually started reflecting the same and justifiably taken the market to record highs.

Event of the Week

RBI maintained status quo on policy rate in the third consecutive monetary policy, and revised GDP estimates upwards in line with expectations. Rising inflationary tendencies have been acknowledged, but little seems to have been done in that direction.

In fact, inflation is projected to cool down below 5 per cent in the first half of FY22, which seems unlikely given the massive helicopter money delivered by the central banks across the world and the runup seen in commodity prices, such as crude and base metals. Inflation could remain elevated going forward as import restrictions are in place to support the economy and this growth recipe can have unintended consequences on higher inflation, which will be a bigger animal to tame a few quarters down the line.

However, in the near-term this accommodative policy will support recovery in financial and capital markets.

Technical Outlook

Nifty50 closed the week on a positive note and most of the sectoral indices, such as Nifty Metal and Nifty Auto contributed positively. Though the top index movers and several banking players have slowed down, the benchmark index continues to get support from other sectors such as Metals, Auto, Pharma and IT. The short-term trend continues to be bullish. However, the index is trading at a rising channel resistance on the weekly chart. So, traders are advised to maintain a bullish outlook, but not to trade highly leveraged or aggressive bets.

Sometime soon a mild dip can trigger a profit-taking move in the market. A break below the 12,900 mark can be taken as a warning signal for any short-term decline.

Expectations for the Week

Going ahead, the week may witness sectoral rotation with the beaten-down sectors picking up pace and witnessing some traction. IT, FMCG and pharma in general have entered a long phase of consolidation and are unlikely to witness any major buying at least till the year end. Metals are expected to remain hot, but vulnerable at current levels as inflationary tendencies are increasing and stimulus from central banks may keep these sectors in limelight, especially base metals and OMCs.

Traders can take advantage of sectoral rotation and place their bets by initiating long positions in media and entertainment, metals sectors and quality PSUs. Investors can accumulate FMCG, IT and pharma stocks through the SIP route since they are consolidating currently. It is expected that any negative news will take the market lower and that may create buying opportunity for investors to pick up quality names.

Nifty50 closed the week at 13,258, up 2.2 per cent.

Credit: Stocks-Markets-Economic Times

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