Markets would be volatile this week

Indian equity markets recorded third weekly gains despite sharp sell-off on Friday, with both Nifty/Sensex up +0.6%/+0.5% to close at 14,434/49,035. The broader market however, underperformed with both Nifty Midcap100 / Smallcap100 down -1.2%/-0.6%. On the sector front, PSU Banks (+5.9%) and Auto (+4.5%) were the biggest gainers. Infra, Realty, FMCG, IT and Energy were up 0.5% to 1.5%. Metals (-2.3%), Pharma (-1.9%), Media (-1.4%) and Private Banks (-0.6%) were the losers. FIIs continue being buyers, having bought equities to the tune of Rs 7,600 crore, while DIIs were net sellers to the tune of Rs 7,400 crore.

Global cues were weak as fresh concerns over coronavirus lockdown in China and European countries weighed on market sentiment. In addition, worries around the implementation of the US President-elect Joe Biden's proposed package and weak jobs data tempered global recovery hopes.

On the domestic side, equity markets witnessed volatility and some profit booking, amidst weak global cues. The November 20 IIP data saw contraction, but it was negated by softening in CPI inflation data for December 20. Overall the market mood is positive, as business activity has been picking up and the October-December earnings are expected to be better with pent-up demand and festive demand collectively boosting the corporate results. Sentiments were also buoyant following improvement in Covid-19 recovery rates and announcement of vaccination process from January 16. Even the Q3 earnings season has kick started on a strong note with IT Heavyweights surpassing estimates.

Technically, Nifty formed a Spinning Top kind of candle but continues to form higher highs from the last eleven weeks. Now it has to hold near to 14350 to witness a bulls grip to take it towards 14600-14750 zones while on the downside major support exists at 14300-14200 levels. India VIX also inched up to 24.1 levels. Volatility spiked by around 24% in this week which is making some pause in positive momentum and needs to cool down below 20 zones to again get the bullish stance.

Going ahead, market would be volatile given the ongoing earning season and the weak global cues. Run-up to the Budget would also add to the volatility. Investors would track vaccine rollout that begins from January 16 while keep an eye on stimulus package implementation in the US. Next week would see lot of macro data getting announced globally along with ECB, BoJ and PBoC interest rate decision. As the long-term market structure remains positive, we advise investors to adopt Buying on Dips strategy to accumulate quality stocks. Traders on the other hand should book profits intermittent.

(The writer is Head – Retail Research, Motilal Oswal Financial Services Ltd.)