Stock markets to be cautious going forth

Indian equity markets ended flat this week with Nifty50 and Sensex closing at 11,505 and 38,846, respectively. The broader market, however, witnessed a strong rally post new mandate proposed by SEBI for Multicap MF.

Nifty Midcap100 and Nifty Smallcap100 climbed 3.8% and 6.0%, respectively. Pharma (+8.9%) and IT (+6.4%) were the biggest gainers, followed by Realty (+5.5%) and Auto (+2.6%). Banks and Financials were the biggest losers, down 2% each. FIIs again turned net buyers after being sellers for the last two weeks, buying equities worth Rs1,689 crore while DIIs remained net sellers for the 11th straight week to the tune of Rs2,397 crore.

The global cues were weak as uncertainty about the coronavirus’s impact on businesses continued to weigh on stocks despite Central bankers globally pledging to do whatever it takes to support the economic recovery. High levels of weekly jobless claims also dented the sentiments.

On the domestic front, weak global cues and rising border tensions between India-China dragged the market. Also, FTSE related rebalancing in the last half hour of trade on Friday led to some selling in key banking stocks which dragged the market. The week clearly belonged to Pharma and IT with a lot of positive developments in both the sectors. USFDA approval, new launches, and development of the Covid-19 vaccine boosted pharma stocks while a strong Q2FY20 earnings update from HCL Tech and bumper listing of Happiest Mind propelled IT stocks.

Going forward, the market would continue with its cautiousness with positive bias as investors would keep a close eye on the US and their response to the further stimulus demand to deal with the pandemic. Some of the other key data that would be released next week would be the PMI for the US, UK, Eurozone, and Japan and the Policy decision in New Zealand. On the domestic front, investors would track developments around India-China border issues. If the weakness persists in the market, one should take advantage of it and add quality stocks in their portfolio as the overall long term market trend remains positive.

Technically, Nifty has to respect its immediate support of 11,450 zones, to witness an up move towards 11,600-11,650 zones while on the downside next major support exists at 11,350-11,330 zones.

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