Equity markets reach new high, break 2 months of consolidation

Equity markets finally managed to break out of the last 2 months of consolidation and reach –new highs during this week. Reducing the number of Covid cases in India followed by gradual unlocking in various states raised hopes of economic recovery from the 2nd wave of Pandemic.

Also good corporate earnings by heavyweights have provided support to the market, thus making it resilient to the weak global cues.

Nifty crossed the 16,000 mark for the first time this week with both Nifty and Sensex rallying 475 and 1691 points respectively (+3.0%/+3.2%) to close at 16,238 and 54,278 respectively.

The broader market however sharply underperformed with Nifty mid cap100 up merely 0.5% while Nifty small cap100 was down -0.9%. Except Media, all other sectors ended in green, with Private Banks and Financials being the leaders – up 3.6%/4.1%.

IT, Energy, Auto gained 2-3% while Infra, FMCG, Metals and Realty were up 1-2%.

FIIs turned net buyers for the first time in the past seven weeks, having bought equities to the tune of Rs 2,600 crore while DIIs were buyers to the tune of Rs 900 crore.

Global cues turned positive on the back of strong corporate earnings and further decline in US unemployment claims last week, while the concerns over rising Covid cases and worries of China’s regulatory crackdown eased.

On the domestic front, equity markets touched new record levels during the week on the back of rebound in economic data points and healthy results and strong management commentaries. Even Auto sales data came in strong for the month of July indicating strong volume recovery.

The market cheered the government’s move to scrap a controversial 2012 law that retrospectively levied capital gains tax on companies for the indirect transfer of their Indian assets.

On the other hand, RBI in its latest bi-monthly policy meeting continued with efforts to support economic growth through its accommodative stance. The MPC (monetary policy committee) kept the repo rate unchanged at 4% for the seventh consecutive time. RBI maintained its FY22 GDP forecast at 9.5%, however it revised the retail inflation forecast to 5.7% from its earlier projection of 5.1%.

Technically, Nifty came out of its trading range and formed a Bullish candle on weekly scale which bodes well for the bulls to start the next leg of rally. We expect the Index to witness an up move towards 16400-500 zones, while on the downside 16,000 could act as a key support.

The 1QFY22 earnings season has so far been in-line to better than expectations. Among the sectors, cement, metals, healthcare, and oil and gas have reported better than expected numbers while IT, consumer, and private banks have been in line.

The primary market continues with a flurry of activity with as many as 4 IPOs lined up next week. We expect the positive momentum in the market to continue on account of strong domestic economy data, impressive quarterly results and unlocking in various states.

Next week the market would react to US and China inflation data along with UK GDP data. Lot of stock specific action would continue as more results get declared.

(The writer is Head – Retail Research, MOFSL)

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