Indian markets rallied this week to touch new highs despite weak global cues. Both Nifty and Sensex touched fresh new all-time high and ended the week with gains of 216 and 711 points up 1.2% each at new closing high of 17,585 and 59,016 respectively.
The broader market too participated in the rally, with Nifty midcap 100 and Nifty small cap 100 up 1.9% and 0.9% respectively. Majority of the sectors ended in green with media outperforming strongly with gains of more than 13%, while PSU and private banks gained 4-5%.
On the other hand, realty and metals saw profit booking and lost more than 1% each while pharma and FMCG were marginal gainers.
FII flows returned this week and they were buyers to the tune of Rs 5,000 crore (till Thursday) while DIIs sold equities worth Rs 1500 crore (till Thursday).
Global cues continued to be weak as slowdown in US consumer inflation failed to overcome concerns about the fast-spreading Delta variant, resulting in slowed economic growth and pandemic-related shortages of labour and supplies continued to drive up prices.
Further, weak Chinese economic data, along with China’s tightening grip on its technology companies kept investors on edge. However, strong US retail sales data and hopes that British policymakers might consider easing England’s Covid-19 rules for international travel provided some positivity.
Focus is also on the possible passage of US President Joe Biden’s $3.5 trillion budget package, which is expected to include a proposed corporate tax rate hike to 26.5% from 21%.
Oil prices too hit a six-week high as another hurricane threatened to bring heavy rain to Texas and parts of Louisiana that were still recovering from Ida, and as the IEA forecast a big demand rebound for the rest of the year.
Despite weak global cues, introduction of PLI reforms for telecom and Auto sectors led to the rally, giving confidence to the investors about the reform led economic recovery. Though the rally was broad based, PSU Banks showed stellar performance on announcement of Bad Bank formation.
Technically, Nifty made a Bullish candle on weekly scale and is forming higher highs from the last seven weeks. Now it has to continue to hold above 17600 zones to extend the move towards 17,777-18,000 zones while support can be seen at 17,500-17,350 levels.
The overall sentiment in the market remains optimistic, given improving macro data points and positive earnings expectation. The PLI schemes announced by the government shows their strong intent to address the sectors’ challenges and pave way for development of local capabilities and capacities, thus enabling companies to rightly capture the opportunity thrown open by China+1 strategy.
The constitution of a ‘Bad Bank’ in our view is a positive development as the focus remains on faster resolution of stressed assets, which will improve the balance sheet of Banks.
The upfront cash payment would also aid in providing incremental cash flows and will enable Banks to focus more on their core operations. However, valuations are not comfortable and hence could lead to bouts of profit booking.
Weak global cues on account of worry over slower economic growth and rising Delta variant cases globally would keep market oscillating between greed and fear.
Nervousness would be seen in the market next week ahead of Federal Reserve and ECB meeting, which could provide some indications on when the central banks will start withdrawing their monetary stimulus and start raising interest rates eventually.
(The writer is Head-Retail Research at MOFSL)
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