Indian markets may remain range-bound in the absence of fresh trigger

Indian equity markets continued its positive momentum for the second consecutive week. Nifty and Sensex gained 1.3% and 0.9% respectively to close at 14,823 and 49,206 respectively. The broader market gained too with both Nifty mid cap100 and small cap 100 up 1.4% and 2.0%.

Except for realty, that was down 0.6%, and Private Banks which were down 0.1%, all the other sectors ended in green.

Metals continue to be the biggest outperformer – up 10%. Robust global demand and pricing lifted metal stocks to yet another peak. Pharma, IT and PSU Banks gained 2-3% while Auto, FMCG, Financial, Energy, Infra and Media gained 1-2%.

Foreign Institutional Investors (FIIs) continued to be net sellers for the seventh straight week, having sold equities to the tune of Rs 5,100 crore, while Domestic Institutional Investors (DIIs) were net buyers to the tune of Rs 2,100 crore.

Global cues were positive with the European markets hitting record high, led by strong economic data across major economies and upbeat earnings so far, which bolstered hopes of a rapid economic recovery.

On the domestic side, investors seem to have factored in the heightened daily Covid cases and are currently looking beyond the short term impact. Various media reports expect cases to peak out by May-end as vaccination drive gathers pace.

Thus, the focus is currently on the corporate earnings and management commentary which has been healthy so far. The RBI Governor’s announcement of second round of loan restructuring and other relief measures to counter Covid second wave uplifted the sentiments.

Even decision of the US to support waiving IP protections for Covid-19 vaccines added to the positive sentiment. However the risk of pandemic getting prolonged and national lockdown getting imposed lingers which is capping the market upside.

The market cap of all stocks listed on BSE hit a record high of Rs 211 trillion today. While the larger indices viz. BSE Sensex and NSE Nifty have fallen 6% from its peak, the broader market has outperformed.

Both Nifty small cap 100 and Nifty mid cap 100 touched a new record high.

Further around 30 new companies got listed in FY21, having raised around Rs 30,000 cr from the market. This has also added to the overall market cap of all the stocks listed.

Going forward, markets are likely to remain range-bound in the absence of fresh trigger. We expect Nifty to trade in the range of 14200-15000 zone in the near term.

Resurgence of the second Covid wave has dented sentiments and weakened FY22E earnings visibility. While the market is currently looking beyond the short-term impact, if the pandemic doesn’t subside soon, it opens up downside risks.

4QFY21 earning season has been the silver lining so far as it has progressed well so far, but earnings downgrades are now rising, given the widespread restrictions in various states.

(The writer is the Head of Retail Research, MOFSL)