Mumbai, 27th July 2020: The upward momentum at the Indian markets continued for the sixth consecutive week as encouraging Q1 earnings from index heavy-weights countered the impact of the surge in domestic COVID-19 cases. Hopes of an early coronavirus vaccine also lifted risk appetite. European Union (EU) leaders agreed on a €750 billion package aimed at funding post-pandemic relief efforts in the region added to the sentiments. The upbeat mood in the market is expected to continue during the next week.
Both Sensex and Nifty have gained for the sixth straight week. For the week, the Nifty gained 292.15 points (up by 2.7 per cent) while the Sensex added 1,109 points (up by 3 per cent). At the Friday’s close of trading, however, both the indices ended with marginal losses when Nifty was down 21.30 points at 11,194.15 while the Sensex was down by 11.57 points at 38,129 points.
Markets extended gains for the sixth consecutive week, taking cues from the better than expected earnings announcements and firm global markets. The week started on the buoyant note and posted handsome gains in the first two sessions however news of fresh tension between the US-China and rise in US jobless claims dented sentiments towards the end and capped upside.
Sundar Sanmukani, Fundamental Head, Choice Broking said, “Reliance Industries Ltd (RIL), which constitutes the highest weight in index, gained 12.3 per cent during the week and thus provided a boost to the market. In the ongoing earning session, the market will continue to witness stock specific sharp movement. Investors will keep a close eye on US Fed interest rate decisions on July 29 and US Q2GDP data scheduled to be released on July 30”.
The Q1FY21, earnings season is underway. So far,technology companies, a few banks and consumer companies have reported their numbers and results have been in line with expectations or marginally better-than-expected. A long list of prominent names like Kotak Bank, Tech Mahindra, Bharti Airtel, Ultratech Cement, Dr Reddy, Maruti Suzuki, HDFC, Reliance, IOC and SBI will be announcing their numbers during the week along with several others.
In the coming week, schedule derivatives expiry of July month contracts combined with the on-going earnings season would keep the volatility high.
S Hariharan, Head - Sales Trading, Emkay Global Financial Services said, “Next week's derivatives expiry comes in the backdrop of significantly improved retail sentiment, with gross long open interest in single stock futures segment up 300,000 lots, and hence, has a bullish undertone. FIIs have invested $1 bn in the last week and the flow environment remains supportive of a strong market for the coming week”.
Domestically as well, there are expectations of further fiscal and monetary policy support and in this regard, RBI’s monetary policy announcement in the first week of August would be closely watched. Central banks driving money supply growth across the globe is unfolding in India as well. RBI's balance sheet has grown by 24 per cent YTD to $710 bn and M3 growth has risen to 12.4 per cent. India’s external situation remains strong. The trade balance registered a surplus in June 2020 and stood at $0.8 bn against a deficit of $3.1 bn in May and a deficit of $15.3 bn in June last year.
Till July 15, 2020, the cumulative rainfall was 11per cent above long-term average. The trends for the rest of the month would be critical for the Kharif crop. So far, the total Kharif acreage was 21 per cent higher than the same period last year.
Shibani Sircar-Kurian, Executive VP, Fund Manager & Head- Equity Research, Kotak Mahindra AMC said, “While the month of June saw a sharp improvement of high frequency economic indicators from the lows of March and April, the pace of improvement now in July 2020 appears to be plateauing out. A part of the initial up-move could have been pent up demand and a part would be normal demand. However, it is difficult to distinguish between the two. Further, one must note, that while there has been a pickup in economic activity from the bottom, it is yet to normalise to pre-COVID levels”.
Ajit Mishra, VP Research, Religare Broking, said “Though the benchmark is gradually inching higher with every passing week, the participation is largely limited. Also, the Nifty has now reached closer to the major hurdle of 11,350 and the oscillators are looking stretched”.
Mishra cautioned investors and said, We’re closely following global indices and any correction in the US markets might derail the prevailing momentum. We’ve seen such situations in the past as well wherein the benchmark was led by a handful of the index majors but hardly spared any stock when it declined. It becomes difficult for the participants to navigate during such conditions. We thus advise preparing beforehand by limiting naked leveraged trades and keeping the existing positions hedged.
Explaining about the current technical position of the market, Sumeet Bagadia, Executive Director, Choice Broking said, “Nifty has strong resistance at 11,360, if it crosses this level then we may see further upside movement up to the level of 11,980 while downside support comes at 10,900-10,850 which is a lower band of an Upward Rising Channel formation”.
Rising COVID cases in the recent past driving local lockdowns have also likely played a role in the slowing trajectory of high frequency indicators. Hence, tracking the pace of improvement from here on becomes critical for the equity markets.
Indicating markets to enter in the new territory with an upward bias in next six-eight weeks, Sircar-Kurian said, “It is likely that the pace of demand normalisation moves gradually towards pre-COVID levels closer to the festive season later in the year.”