Market consolidation to continue

Indian markets after touching new life-time highs last Friday, witnessed selling pressure this week on account of multiple weak global cues. Both Nifty and Sensex lost 321 and 1,283 points respectively (-1.8 per cent/-2.1 per cent) to close at 17,532/58,766.

The broader market however ended the week in marginal gains with Nifty midcap 100/ Nifty smallcap 100 up 0.8 per cent and 0.6 per cent respectively. Sector rotation was seen towards under-valued sectors from outperforming ones.

PSU banks and energy were the biggest gainers – up ~6 per cent each, while metals, pharma, auto, realty and infra gained upto 3 per cent. Heavy profit booking was seen in IT which lost more than 6 per cent while FMCG, private banks and financials lost ~2 per cent each.

FIIs were heavy sellers till Thursday to the tune of Rs 6,000 crore while DIIs bought equities worth Rs 5,000 crore (till Thursday).

Global cues were weak on concerns over rising US Treasury yields, persistent inflation, and contentious debt ceiling negotiations in Washington. US lawmakers however, temporarily reached an agreement to extend the federal government’s funding through December, thus averting the risk of shutdown, but the fate of two major spending bills still remains uncertain.

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Evergrande Group’s debt woes continued, with the People’s Bank of China injecting liquidity into the financial system. Investors also worry over the potential impact of a widening power shortage in China and inconclusive German election. Even Global macro data points came in mostly weak.

However, crude prices weakened after crossing $80/barrel post surprise rise in US stockpiles and media reports that top producers may raise output in November to control prices.

On the domestic front, PSU banks gained the most post media reports of Tata Sons taking over Air India. On the other hand, Auto sector came back in demand after Govt cleared incentives worth Rs 26,058 crore under the PLI scheme.

The PLI scheme is expected to bring in new investments worth more than Rs 42,500 crore in five years and incremental production of over Rs 2.3 lakh crore. However, September Auto sales numbers came in lower than expectation.

On the positive side, Ratings agency Icra revised its 2021-22 real GDP growth estimate for India to 9 per cent from the earlier 8.5 per cent on back of widening coverage of Covid-19 vaccines, healthy advance estimates of kharif (summer) crop and faster government spending. It expects the second half of the fiscal year to have brighter prospects.

Technically, Nifty formed a Doji sort of candle with long lower shadow on daily scale and a Bearish candle on weekly scale but continued its sequence of higher lows of last nine weeks. Now it has to hold multiple support of 17,550-17,580 zones, for an up move towards 17,777-17,850 levels whereas support is seen at 17,450 and 17,350 zones.

Markets are likely to continue with its consolidation amidst weak global cues and FIIs selling. Investors continue to fret over multiple factors, including persistently high inflation, the fresh rise in Covid cases globally, Chinese regulatory headwinds, supply chain bottlenecks and fading fiscal stimulus.

Though the domestic cues remain positive as the fresh Covid cases continue with its declining trend resulting in increasing economic activities, the stratospherically high valuations along with multiple global concerns would keep markets highly volatile.

Amidst this backdrop, intermittent profit booking is likely to continue and investors would keep trying to move towards under-valued stocks from outperforming sectors. Small traders should be cautious and adopt stock specific
approach. Investors can adopt buy on dip strategy as the long term fundamentals remain intact.

Next week few more global macro-economic data points would be released which would provide some direction on the global growth front.

(The writer is Head-Retail Research at MOFSL)