Markets To Remain Subdued As The Steam From PM’s Package Fizzles Out

Markets To Remain Subdued As The Steam From PM’s Package Fizzles Out
Yagnesh Kansara - 14 June 2020

The stock market trend witnessed over last couple of week is indicating that Rs 20 lakh crore Atmanirbhar Bharat package that was declared exactly over a month ago on May 12 by the Prime Minister Narendra Modi is finally proving to be inadequate for the Indian economy. The steam is running out of the rally as bulls are seen exiting in the absence of any new trigger and bears are taking over.

This will result in heightened volatility and the important number to watch out is India’s Volatility Index (India VIX) which is currently at 30-32 levels. VIX measures how swiftly the prices of individual stocks and benchmark prices rise during the trading day. In the weeks to come, markets are likely to remain under pressure and VIX is likely to rise which will determine the speed and direction of the market movement.

Jimeet Modi, Founder & CEO, SAMCO Securities, said, “Magnanimous stimulus packages by countries like US, Japan, Italy and Germany on the basis of their GDP were infused and their stock markets have recovered almost 40-50 per cent from their lows. But a comparatively weaker package in India has led to a weaker recovery of around 30-32 per cent. Each country has its own unique economic dynamics and Indian markets will soon start reflecting its own economic realities. Therefore, time has come for the Indian bourses to decouple from global stock indices and it seems that the phony rally witnessed over last one month is nearing its end.”

During the trading week ended on June 12, the S&P Sensex was down 506.35 points or 1.50 per cent at 33,780.89 while Nifty50 closed the week by sheding 169.25 points or was down by 1.70 per cent to close at 9972.90 points.

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, said, Reversal of FII flows has clearly helped investor sentiment at the margin. It remains to be seen whether these flows continue in the face of challenging macros/micros with one of the lowest fiscal stimulus package offered by Indian policymakers for the economy.”

The trading week ended on June 12, began with tremendous optimism in Indian bourses. Markets soared as the key theme revolved around “Stocks at Wall Street remain red-hot and we see investors’ sentiment picking up each passing day.” Indian markets too had reflected the same kind of optimism with the number of stocks banned for trading in F&O list moved upto six.

However, as the event of the week suggests that this optimism is unlikely to continue. US Fed’s decision to keep interest rates unchanged failed to cheer the Dow Jones Industrial Average (DJIA) at least till the unemployment rate remains above 6.5 per cent.

Modi said, “The US Fed’s plan to further invest in bonds to maintain low borrowing rates will certainly add to the ever-increasing debt pile for the US. This implies that the Fed estimates worst is not over yet. Hence, the outlook for medium term could remain grim for both domestic as well as global markets. US VIX is currently at much higher levels of 40-41 which implies that fear factor is again rising for the US markets after a terrific come back. It can be inferred that there should be no hurry for the bulls to jump into the markets right now.

Technical outlook also indicates that Nifty50 after a strong opening at the start of the week turned volatile and closed lower by the end. The market breadth for the week mostly remained weak. The index needs to decisively close above 10,150 to reclaim some momentum strength. Most maintain a bearish outlook for the markets going ahead. Traders should sell on rally.

Khemka said, “Going ahead, we expect the markets to remain volatile and in a consolidation mode for some-time, as it would be driven by global cues, development around coronavirus cases and vaccines. Even valuations look a little stretched, thus markets may take a pause till some clarity emerges over whether the economy is on the recovery mode or not. Hence, 'Buying on Decline’ would be a better strategy over the next few weeks.

Results from major PSU banks are awaited but they are also expected to sombre the mood of the markets. Dealers said, investors should preserve cash and not to jump the gun in this phony rally and wait for markets to correct.