Resurgence of Covid-19 cases worries markets

Indian equity markets ended the volatile week on a negative note despite a sharp pullback on Friday. Nifty/Sensex fell -1.9%/-1.8% to close at 14,744/49,858. The broader market fell with sharper intensity with both Nifty Midcap100 / Smallcap100 losing -2.9%/-3.3%.

FMCG was the only gainer – up +2.9%. Rest all the sectors ended in red with Realty and PSU Banks being the biggest losers – down more than -5%, followed by Pharma (-4.2%). Private Banks, Financials and Media lost 3-4% while, IT, Energy, Auto and Infra fell in the range of 1-2.5%. FIIs were net buyers for the week, having bought equities to the tune of Rs 1,418 crore, while DIIs were net sellers to the tune of Rs 560 crore.

Global cues were weak following a spike in bond yields to a 14-week high. Yields spiked despite a significantly positive outlook by US Fed in its MPC. Fed pledged to keep the interest rate near zero and projected the US economy to grow by 6.5% in 2021 - the largest annual output growth since 1984.

On the domestic side, Nifty has been in a corrective mode during the week due to factors like high bond yields in the US, a slew of QIPs and IPOs taking away liquidity from the system and an increased number of Covid-19 cases being reported across the country. Further February retail inflation surged to a three-month high while the WPI surged to a 27-month high, which also dampened the sentiment. However, on the positive side, Moody’s upgraded India’s GDP growth forecast to 12% for CY21.

Technically, Nifty formed a strong Bullish candle on a daily scale and again reclaimed to its 50 DEMA. However, it continued the formation of lower highs but closed positive after the losing streak of the last five trading sessions. Now, it has to decisively hold above 14700 to witness an up move towards 14900-15000 while on the downside immediate support exists at 14600-14450.

India VIX was down by 7.9% for the week to 19.98 levels. Cool down in VIX below 20 zones is required for bullish grip and smoother move in the market. Lower VIX with rising Put Call Ratio indicates that Bulls may get some stability after the losing ground of last few sessions.

The market may remain volatile in the near term given the volatility in the bond yields, concerns over the rising commodity prices and risk of an increase in inflation. In addition, resurgence of the Covid-19 cases continues to worry the market and hence it may continue with its roller coaster ride. Given the likelihood of high volatility continuing in the market for some time, investors would do well by accumulating good quality companies on decline in the market.

(The writer is Head – Retail Research, MOFSL)