Markets consolidate near their peaks

Indian equity market witnessed healthy gains this week after remaining lacklustre last week, with Sensex touching an all-time high of 40,392.

Even broader markets started participating this week with both Nifty mid-cap/small-cap indices outperforming Nifty50. Reports of better-than-expected festive sales, decent earnings season so far, hopes of stimulus from the government including further tax reforms, continued FIIs inflow and fall in oil price kept market sentiments positive. On the global front too, 25 basis points (bps) rate cut by US Federal Reserve helped cheer the market.

Nifty 50 closed at 11,891, while Sensex closed at 40,165, both up more than 2.5% for the week. On the other hand, Nifty Midcap 100/ Smallcap 100 recorded much better gains of 4.4%/3.4%.

On the sector front, all the sectors closed in green led by Media (11.1%) and PSU Banks (10.5%). Auto and metals recorded gains of 5.0-6.5% while others witnessed gains in the range of 1.5-4.0%.

Foreign institutional investors (FIIs) were net buyers throughout the week, buying equities worth more than Rs 10,400 crore. On the other hand, domestic institutional investors (DIIs) were marginal net sellers of around Rs 830 crore.

Markets have gained momentum on the back of several positive developments. Investors are building hopes on another round of stimulus announcements and some more economic reforms by the government which could bolster growth. Sentiments have also revived with some demand improvement witnessed during the Diwali season and decent earnings season so far.

The second-quarter results, so far, have been in-line to marginally better than expectations. Even fiscal deficit for H1 came at 92.6% of budgeted estimates, lower than 95.3% in 1HFY19, helped by transfers from the RBI.

However, October Manufacturing PMI data came in at the two-year low, while the Core Sector witnessed the worst performance in 14 years, shrinking 5.2% in September raising concerns on GDP growth in Q2.

Auto sales for the month of October were mixed with Maruti, M&M, Escorts and Bajaj Auto reporting better than expected volumes, while TVS Motor reported poor sales data.

On the global front, 25 bps rate cut by the US Fed and better than expected US GDP numbers for the third quarter cheered the market. However, concerns have emerged with regards to the US-China trade deal, which could dampen the sentiments going forward.

For now, the market appears to be consolidating near its peak and are waiting for fresh triggers to cross its highs. With FII participation, broader markets have started performing which should continue next week as well.

However, Nifty valuations appear fair at 22x FY20 PE, which may limit significant upside – while stock-specific action is likely to continue.

Some of the key results to watch out for next week include HDFC Ltd, Dabur, Divi’s Labs, Tech Mahindra, Titan, Cipla, GCPL, Lupin, UPL.

Technically Nifty formed a Doji Candle on a daily scale but a Bullish Candle on a weekly scale indicates a major trend is positive while dips are being bought on an immediate basis.

It has been forming higher highs – higher lows on weekly scale and supports are gradually shifting higher.

Now it has to continue to hold above 11820 levels to witness an up move towards 11,950 then 12,000-12,103 zones while on the downside major support is seen at 11,780 then 11,700 zones.

(The writer is Head of Retail Research, MOFSL)