Markets Likely To Consolidate And Remain Sideways

Markets Likely To Consolidate And Remain Sideways
Yagnesh Kansara - 21 June 2020

Mumbai, June 21:The next trading week beginning Monday is expected to be unpredictable as there are no scheduled events like announcements of crucial numbers, headline economic activity expected. The earning season is also coming to an end. In the wake of this, two major developments - related to COVID-19 and Indo-China border tension - will drive the market.

During the week ended June 19, on the back of index, heavyweight stock of Reliance Industries Ltd (RIL) benchmark indices closed with comfortable gains. Nifty50 closed the week at 10,244.4, up by 271.50 points or 2.7 per cent and S&P Sensex gained 950.84 points or 2.47 per cent to end the week at 34,731.73 points.

Vinod Nair, Head of Research, Geojit Securities said, “From a technical viewpoint, the momentum in the Nifty is likely to continue, considering the close above its 100-DMA (Day Moving Average), but external factors can impact this momentum heavily. Any increase in tensions and indication of drying up of liquidity (from foreign players) can have an immediate impact on the markets. Considering the volatility and the unknowns, this seems to be a sell-on-rise market and investors would do well to keep booking their profits”.

Foreign Portfolio Investors (FPIs), who have continued to provide liquidity to the Indian markets so far, were seen selling in the first four days of the last trading week. However, they were seen resuming their buying in smaller quantity at the end of the week. FPIs trading patterns also showed net outflows for the week, which could indicate a liquidity problem for the markets in the coming days.

Rusmik Oza, Executive Vice President, Head of fundamental Research, Kotak Securities, said, “In the first four days of previous trading week, FPIs have sold equities worth $370 million. Last two days figures have been mildly positive. Market mood is quite supportive due to gradual resumption in business activities and some positive news flows coming from the BFSI sector. Since global markets are supportive, the Nifty-50 has smartly moved back above 10,000 level. If global markets don’t fall sharply this week, then we can expect some more positive flows from FPI side.”

The Indian benchmark indices closed up by around 3 per cent, on a weekly basis, in a week that was dominated by an escalation in the India-China border dispute. The virus infections are at all time highs and its potential impact is still an ever present threat, even for the global economy, which was worried about resurgence in virus cases in some countries. But this is something that the market is not focusing on, instead choosing to focus on the post lockdown potential gains in the economy.

‘Hope’ the single most emotion is rallying markets higher on the pretext that things will normalize in the next 3-6 months. At the same time, management commentary after quarterly results, in general, suggests that Q1FY21 will be a washout quarter. And the insanely disconnected market seems to have even discounted and assimilated this as one of the darkest quarters in history.

It goes without saying, if the new world order fails to bring about the same level of visibility and demand revival, markets might genuinely react and discount such negative surprises that have currently mesmerized all participants under the feeling of optimism that the things will eventually improve.

It is therefore expected that markets are likely to keep their underlying positive bias at least until Q1FY21 results are being announced. However, post the quarterly announcements, markets are expected to correct upon, seeing big red cuts in numbers which will then be a good time for investors to buy on declines.

Jimeet Modi, Founder & CEO, SAMCO Securities said, “Both locally as well as globally, indices are expected to consolidate and move sideways. Across the world, markets are trying to decode how the easing of lockdown restrictions will help revive economic demand. However, it insinuates a long drawn journey which ultimately will be reflected in the stock prices. The market is expected to just drag around for sometime till clarity in the real economy emerges. Currently, investors are advised to stay away from investing or at best cherry pick frontline stocks in private sector banks, autos as well as metals in small quantities”.

Entire credit of the last week’s gains in the benchmark indices goes to the index heavyweight RIL. The stock shone brightly as the company walked out of a huge debt burden ahead of its declared time schedule, becoming a net debt free, by attracting investors into Jio platforms and through the biggest Rights issue in the history of India’s capital markets. RIL was a saviour for Indian bourses last week that kept them afloat otherwise lower prices would have created a cascading negative effect on the markets and participants’ sentiment.