Investors should buy on dips

Indian equity markets posted second weekly loss amidst weak global cues. Nifty/Sensex lost -3.0%/-3.5% to close at 14,529/49,100. The broader market however, outperformed with both Nifty Midcap100 / Smallcap100 gaining +0.6%/+0.9%.

Majority of the sectors ended in red with IT being the biggest loser, down -4.7%. It was followed by Financials, auto, Pharma and Media which lost 3-4% while FMCG and Banks lost 2.5-3%. On the other hand, Metals was the clear winner with gains of 7.6%, on the back of rally in commodity prices fuelled by hopes of a recovery in demand. Energy and Realty ended with mild gains of 0.5%. FIIs turned net sellers for the week, having sold equities to the tune of Rs 11,300 crore (adjusted for Bosch deal), while DIIs were net buyers to the tune of Rs 300 crore.

Global cues were weak as panic in global bond markets led to sharp rise in yields which spooked investors amid fears of interest rate cycle reversal and chances of sell-off in other asset classes too. US treasury yields leaped to their highest since the pandemic began, leading to steep fall in global markets. This was seen despite US Federal Reserve Chair Jerome Powell’s statement that the policy rates could remain low for years.

On the domestic side, huge volatility was witnessed this week with market witnessing sharp rally for two days post NSE’s longest-ever outage on Wednesday. It rallied almost 3% on Wednesday (post trade resumption) and Thursday put together to only witness sharp selloff of 4% on Friday. The first day of the March F&O series traded in deep red and the session ended with huge losses of more than 500 points.

Rising bond yields, geopolitical tensions and concerns over inflation have piled pressure on the market. However on the positive side, approval of PLIs in certain sectors along with FM Nirmala Sitharaman's statement that the Embargo has been lifted on grant of Government business to private banks, cheered the markets. Moody's also raised its growth projections for India, saying the economy is expected to clock a growth of 13.7% in FY22 on the back of the normalisation of activity and rollout of the Covid-19 vaccines.

Technically, Nifty formed a strong Bearish candle on daily scale indicating bears had complete grip on the market throughout the day. It formed a Bearish Island Reversal Gap pattern on daily time frame with gap up and gap down near to 15008-15065 zones in last two sessions. Now till it remains below 14650, weakness could be seen towards 14400-14300 zones while on the upside, hurdles are seen at 14750-14850 zones. India VIX moved up sharply this week to 28.14. Surge in VIX has given tight grip to Bears and is likely to put pressure on the market at any bounce.

Going ahead, the market may continue with its consolidation given weak global cues. Investors would closely track bond yields, geopolitical tensions and inflation data for further market direction and would monitor developments around new US stimulus announcement. Market would react to India’s Q3FY21 GDP data on Monday, while on the economic calendar front, PMI data across few countries including India would also be eyed upon. High valuations does not provide much comfort and thus correction was long overdue. Investors should take this opportunity to buy on dips while traders should trade cautiously with stock specific action and book profits in regular intervals.

(The writer is Head, Retail Research, B&D, MOFSL)