At first, this was assumed to be the start of a much-needed and much-awaited correction, but the market managed to surprise everyone by recovering and continuing its upward journey. This behaviour entails that the bulls are developing fatigue in the short term as they continue to recover.
However, the brief fall failed to deter the FPIs, who continued their bullish stance on Indian equities and remained net buyers through the week, thanks to lower interest rates and surplus global liquidity. Further, with Sebi’s new margin rules kicking in, domestic equity volumes seem to be drying up and any serious buying/selling by FPIs will prove the deciding factor for Dalal Street dynamics.
Near the 20 mark, India VIX appears to be on the higher side due to these new structural norms, which are drying up the liquidity, the oxygen for Mr Market.
Another positive news helped the swift market recovery from Monday’s fall, a $900 billion stimulus that the US Congress has approved to aid struggling households and elevate unemployment levels. For the second time, American households would receive direct payments to the tune of $600 through the legislation, which is expected to drive up liquidity. But this additional stimulus might not create as much momentum in the market, as expected, since the quantum of the benefit has already been factored in.
On the contrary, this has helped keep the markets buoyant after the new strain virus scare surfaced. With the swift correction and recovery in global as well as domestic markets, it appears every bull market correction should indeed be bought into by investors for now.
Event of the Week
The Covid pandemic had tossed our government’s 2020-21 divestment target plans of Rs. 2.1 lakh crore off-track. With an elevated mood in the market and the participants willing to take higher risks, the government has stepped up efforts to monetise its assets of public sector units. They are aggressively doling out disinvestment plans and asset monetisation targets for 29 public sector units, including IOC, HPCL, GAIL, NTPC and NHPC. This government proposal can also be seen as a balancing act, which would certainly keep the domestic bourses in check.
Technical Outlook
After Monday’s sharp drop, Nifty50 managed to regain most of its losses, but still closed the week on an almost flat note, after seven consecutive weeks of a higher close. Nifty IT and pharma indices remained top gainers, while most of the sectoral indices closed in the red. The sharp sell-off seen on Monday was a clear sign that the bulls are getting exhausted and the market is overstretched on the upside for the short term.
ET CONTRIBUTORSThe immediate support on the downside is now seen at 13,130 and any break below the same level would lead to short-term weakness in the benchmark indices. The immediate resistance on the higher side is now placed at 13,775.
Expectation for the Week
With the calendar year coming to an end, the market is expected to trade in a rangebound manner with the 13,750-13,800 zone on the upside and 13,100-13,200 levels on the downside. The market may witness heightened volatility in the coming week, and liquidity may dry up as the new margin norms set in.
In general, investors are advised to stay put and refrain from aggressive buying in the short term. However, they should keep a vigilant eye on private sector banks, which are currently consolidating and can be accumulated on any minor correction. Select auto and cement stocks can also be added to an investor’s portfolio. Nifty50 closed the week flat at 13,749.
Here’s wishing everyone a Merry Christmas and a very Happy New Year!
