Sector-specific actions may drive rally

Indian equity markets continued its positive momentum this week with both Nifty50 and Sensex up +2.4% and +2.7% to close at 11,648 and 39,467, respectively. The broader market, on the other hand, also witnessed strong momentum with Nifty Midcap100 and Nifty Smallcap100 up 2.3% and 3.7%, respectively.

The majority of the sectors ended in green with Banks being the biggest gainer, up 10%, followed by Financials (+6.3%), Media (+6%), and Realty (+4%). FMCG (-1.1%) and Energy (0.7%) were the losers. FIIs continued to be net buyers for the fourth straight week, buying equities worth Rs 5,400 crore while DIIs remained net sellers for the eighth straight week to the tune of Rs 3,000 crore.

Global cues were mixed following the US Fed Reserve’s policy shift to focus on economic growth and less on inflation. However, signs of progress in US-China trade negotiations allied concerns to some extent. Further, US FDA approved plasma therapy for Covid treatment which boosted optimism over potential Covid treatment.

The domestic market rallied with financials leading the surge, post the Federal Reserve’s dovish message on the future path of interest rates which meant that interest rates will stay ultra-low for as long as needed to support the economy.

Even RBI Governor Shaktikanta Das said the central bank has not exhausted its ammunition to deal with the current situation due to the coronavirus pandemic. Strong liquidity and favorable government policies across sectors too supported the market sentiment. The realty stocks surged post the Maharashtra government’s move to cut 2-3% stamp duty and on the hopes that the other states may follow soon.

The defence stocks gained, after PM Modi called for self-reliance in defence production. Even two-wheelers zoomed after Finance Minister said that GST rates on two-wheelers merit a revision, which are now taxed at the highest slab rate of 28%. The Government also imposed anti-dumping duty on phosphoric acid import from Korea for five years, which drove the rally in chemical stocks.

Going ahead, the market may continue to move upwards in the near term with more of the sector and stock-specific actions, but intermittent profit booking should not be ruled out. Strong global cues led by positive news flows around vaccine development, further stimulus announcement and further ease in tensions between US-China would support the positive momentum. Investors would also keep an eye on US PMI data along with Non-farm payroll data which would be announced next week. On the domestic front, the most important Q1 GDP data, infrastructure output, and PMI data along with monthly auto numbers would provide further direction to the market.

Technically, Nifty’s Major trend and momentum is positive to commence the next leg of rally towards 12,000 while support exists at 11,350. Gradual cooling in volatility on week on week basis also suggests a bullish stance and buy on decline strategy could continue in the market.

(The writer is the Head of Retail Research at Motilal Oswal Financial Services Ltd)