Stocks oscillating between greed and fear

Indian equity markets witnessed volatility this week but managed to end with gains for the fourth straight week. For the week, both Nifty50 and Sensex were up 1.5% each to close at 10,768/36,594 respectively. The broader market also participated in the positive momentum with Nifty Midcap100/Smallcap100 up 1.4%/3.5%. Among the sectors, Metals was the biggest gainer, up 3.5%, followed by Banks (+2.5%). Further, rally in Reliance Industries to a new all-time high of Rs1,885 provided support to the market. However institutional flows were weak with both FIIs and DIIs being net sellers to the tune of Rs 635 crore/Rs 2608 crore, respectively.

Global cues were positive as encouraging economic data from the US and China and development on the vaccine front boosted hopes that the global economy will bounce back. On the domestic front, PM Narendra Modi’s speech at India Global Week Summit and initial signs of ease in geopolitical tensions between India and China uplifted the sentiments.

However, record new coronavirus cases and deaths in several US states have stoked concerns that new lockdowns could derail the economic recovery and turned markets cautious towards the end of the week. Even domestic investors were seen booking profit due to worries over the continuous rise in cases in India and further restrictions announced in many parts of the country. In fact, India has now become the third-most impacted country in terms of coronavirus cases, after the US and Brazil.

Thus the market seems to be oscillating between greed and fear. On one side there is the hope of gradual economic recovery along with positive management commentary while on the other side, there is the fear of rising Covid cases leading to lockdown again. The June quarter earnings season started on Thursday with TCS reporting numbers below estimates. This earnings season would be of key significance as it faced the maximum brunt of lockdown. Thus management commentary would be keenly watched out for and could keep the markets volatile in the near term. Further next week couple of macroeconomic data would get announced across the US, UK, China, and India. Even BoJ’s interest rate decision is due next week.

(The writer is the head of Retail Research at Motilal Oswal Financial Services)