Markets likely to track global cues along with weakening rupee

Indian equity markets ended the week on a weak note with Nifty/Sensex falling -0.2 per cent/-0.9 per cent respectively to close at 14,835/49,591. The broader market, however, sharply outperformed Nifty with both Nifty Midcap100 / Smallcap100 gaining +1.6 per cent/+3.3 per cent.

Sectorally, it was a mixed bag with Metals continuing to be the biggest gainer for the fourth week in a row – up +6.6 per cent, followed by IT and Pharma – up +5-5.5 per cent. FMCG gained 1 per cent while Infra ended flat.

Private Banks and Financials were the biggest losers down 3-4 per cent while Energy fell -2.4 per cent. Auto, PSU Banks, Realty and Media fell 1-1.5 per cent. FIIs were marginal net sellers for the week, having sold equities to the tune of Rs 300 crore, while DIIs were net buyers to the tune of Rs 660 crore.

Global cues were mixed after Fed's commentary reinforced that the central bank plans to maintain its policy support despite massive fiscal spending from the recent government stimulus package. Investors are awaiting on sidelines for the earnings season to kick off from the next week for more cues. However the overall sentiments in the market remain positive given successful vaccine rollouts in the US and UK and strong economic data.

Domestically, Nifty ended the week with minor losses on account of concerns over rising corona virus cases and reports of vaccine supply crunch. The country reported 131,968 new infections and 780 deaths on Friday - the biggest daily increase since mid-October.

Metals continued to lead the rally amid firm global demand and steady rise in the metal prices. Pharma stocks gained for the third week in a row on account of rising demand for medicines due to rising Coronavirus cases, while IT stocks remained in focus ahead of results next week. Despite lacklusture Nifty, Midcaps outperformed for the third consecutive week while smallcaps posted biggest outperformance in over a month. Overall, the market cheered the RBI’s decision to keep rates unchanged and maintain its accommodative stance to support growth, especially when the economy faces a renewed threat to growth.

Technically, Nifty formed a Doji candle with long lower shadow on weekly scale indicating buying at lower zones. Now, it has to decisively cross and hold above 14880 zone for an up move towards 15000 and 15100 zones while on the downside support exists at 14750 and 14650 levels. India VIX fell down to 19.78 levels. Lower volatility and a hold below 20 zones could continue to keep buy on declines strategy in the market.

Going ahead, Indian markets are likely to track global cues along with the weakening rupee which has depreciated more than 2 per cent. Lot of stock specific action is likely to be witnessed as the earnings season would kick start from next week. We expect Q4 to be another strong quarter, aided by a deflated base of 4QFY20 and a healthy demand recovery for the large part of 4QFY21. Performance is expected to be healthy despite headwinds of commodity cost inflation in various sectors. However, concerns over the fast spreading 2nd wave of Covid-19 in India along with vaccine supply crunch would keep the markets volatile. Next week, investors would also keep an eye on CPI data of US and India and GDP of China.

(The writer is Head – Retail Research, MOFSL)