Global factors, sops may have positive impact

Indian equity market closed the week with marginal gains after profit booking pulled down the Sensex from its record highs. Broader markets, which had outperformed Nifty in the previous two weeks, too saw profit booking and closed the week in the negative zone. Positive cues from both global as well as domestic markets helped the markets move up higher during the start of the week. However, Moody’s downgrade, as well as profit booking at higher levels, dragged performance towards the later part.

Nifty 50 closed at 11,908 with marginal gains of 0.1%, while Sensex closed at 40,324, with gains of 0.4% for the week. On the other hand, Nifty Midcap 100/Smallcap 100 underperformed, declining 1.0%/0.8%. The sectoral performance was mixed, as well. Among the major gainers were Realty (3.7%), Metals (2.0%). Nifty Bank was up 1.4% led by Private Banks (1.6%). Media and PSU Bank were the major losers (5.1%/4.1%) on profit booking as both the indices had gained more than 10% in the previous week. Energy, Auto, Pharma, and FMCG declined in the range of 1.5% to 3.0%.

Foreign Institutional Investors (FIIs) continued to remain net buyers for the second consecutive week, buying equities worth more than Rs 3,200 crore. On the other hand, domestic institutional investors (DIIs) were net sellers of around Rs 4,430 crores.

Markets continued to witness momentum on the back of several global as well as domestic positive developments. On the global front, settlement of the first phase of the US-China trade deal and likely rollback of tariffs helped cheer sentiments. On the domestic front, the government has been consistently following up with measures to revive the economic growth, including the latest measures to revive the real estate sector, which would be positive in the long term. Other factors like strong FII buying interest and good quarterly results are also encouraging.

Next week would see the last leg of the current quarterly results. Some of the key results to watch out for next week include Britannia, Coal India, Hindalco, Bata, Grasim, ONCG, PAGE.

While the initiatives taken by the government and RBI will take time to work on the ground and reflect in numbers, the market is focusing on long-term reforms (Tax cuts, Disinvestment/Privatization, potential cuts in income tax rates/DDT/LTCG). Improvement in global cues (easing of the US-China trade war, range-bound crude oil prices, monetary easing by the US Fed, US equity markets at new high) is also aiding sentiments. We expect the government to maintain its policy/reform momentum and announce more initiatives in the coming days. While Nifty50 valuation at 22x FY20 is not cheap, it can overshoot in the near term on the back of liquidity flows and positive sentiments. We expect the participation in mid-caps to increase going forward given their significant underperformance over the last 12 months.

Technically Nifty formed a Bearish Candle on a daily scale while Doji Candle on a weekly scale. Multiple supports are seen at lower zones while selling pressure is seen near 12,000-12,050 levels. Now it has to continue to hold above 11,850 zones to witness an up move towards 12,035 then 12,103 levels while on the downside supports are seen at 11,780–11,750.

(The writer is the Head of Retail Research at MOFSL)