Markets expected to consolidate in near term

Indian equity markets ended this week on a negative note despite witnessing a rally on the last day. Nifty50 and Sensex corrected -4% and -3.8% to close at 11,050 and 37,389, respectively. The broader market also fell sharply with Nifty Midcap100 and Nifty Smallcap100 down -5.1% and -5.6% respectively.

All the sectors ended in red with PSU Banks, Metals, and Media being the biggest losers, down 8-9%. FIIs turned net sellers again, selling equities worth Rs 10,490 crore. However, DIIs turned net buyers after being sellers for 11 straight weeks, buying equities to the tune of Rs 4,250 crore.

The global cues were weak as investors were worried that the rising cases of Covid could hamper the economic recovery across the world. Further delays in additional US stimulus and concerns about fresh pandemic lockdowns in Europe dented the recent positive sentiment. However, the Fed Chairman’s statement that the economy will need further support, allayed some concerns. The sentiments revived after the media reports that US Democrats are drafting a new $2.4 trillion relief bill, aimed at resuming the stalled stimulus talks with Republicans.

On the domestic front too, weak global cues led to a market correction. However, it revived later on the last day of the week, on the hopes of more stimulus measures from the government ahead of the festive season to create jobs and push demand.

Technically Nifty has formed a Bullish Candle on a daily scale while a Bearish Candle on a weekly scale which indicates that some bounce could be seen from lower levels but supply pressure could remain intact at higher zones.

Even Nifty one-year forward PE at 21x doesn’t offer much comfort. Hence, despite today’s rally, we expect market to consolidate in the near term given the rising Covid cases globally, economic uncertainty, and continuous FII selling for the past few sessions. Next week, investors would watch out for GDP data of the US and UK, PMI data for the US on the global front, while on the domestic front RBI’s monetary policy along with infrastructure output and fiscal deficit data would provide direction to the market.

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