Investors should accumulate quality stocks on the dips

Indian equity markets witnessed increased volatility this week after seven weeks of consecutive gains and finally managed to close on a flat note.

While Nifty ended in marginal red (-0.1%) at 13,749 – just 11 points away from record closing levels; Sensex was flat (+0.03%) to close 46,973 to end at record closing high. The broader market, however, witnessed profit-booking with both Nifty Midcap100 / Smallcap100 down -1.5%/-0.8%.

On the sectoral front, defensives were back in focus as IT (+3.2%), Pharma (+1.1%) and FMCG (+0.04%) were the only ones to end the week in green. PSU Banks (-3.5%), Media (-3.2%), Metal (-2.2%), and Auto (-2.1%) witnessed profit booking and were the major laggards. FIIs continued their buying spree for the 12th straight week and bought equities to the tune of Rs 2,600 crore, while DIIs were net sellers to the tune of Rs 3,400 crore. The market was closed on December 25 for Christmas.

Global sentiments sawed between greed and fear as investors earlier reacted cautiously after the new strain of coronavirus in UK threatened fresh lockdowns in Europe and the US President Donald Trump’s threat to veto the long-awaited Covid package. However, cues turned positive on optimism over the prospect of a Brexit deal between Britain and the European Union and after BioNTech assured that its vaccine would work against the new UK Covid variant, but needed further studies to be completely sure.

On the domestic side, after the sharp correction on Monday, market recovered over the last three days to recoup most of the losses. IT sector witnessed renewed buying interest after Infosys and Wipro announced winning of mega deals during the week and strong results announced by Accenture earlier.

Going ahead, the market is likely to maintain its positive momentum on the back of abundant liquidity, declining Covid cases in India, effective vaccine rollout and increasing prospects of Brexit deal. However, emerging risk pertaining to new coronavirus strain in UK may limit upside. The monthly F&O expiry next week could add to the volatility. The long term market structure remains positive.

Technically too, Nifty formed a Bullish candle on a daily scale, making higher lows from last three sessions. Now it has to continue to hold above 13600 zones to witness a fresh rally towards new lifetime high of 13850- 14000 zones, while on the downside, major support exists at 13500-13300 levels. We would advise investors to accumulate quality stocks on the dips while traders should look at booking profit intermittently.

(The writer is Head – Retail Research, Motilal Oswal Financial Services Ltd.)