But at the start of this week, investors observed some form of fragmentation and market began doubting the continuation of the rally. While Nifty50 continued its onward march to fresh highs, smallcaps and midcaps showed signs of cracks. It is the first time in several months that the broader market indices underperformed the benchmark in a rapid selloff that ensued after BSE announced some additional surveillance measures.
But could a circular like this cause a “deep correction” on Dalal Street? While it did act as a catalyst, this is not the end of story for the broader indices. In fact, as per July mutual funds data, there has been a positive bias towards smallcap funds with a 152% MoM jump in inflows against only a marginal 8% MoM rise in largecap funds, which shows there are still bundles of cash being diverted towards the smaller stocks.
Hence, the confidence seems to be intact from this segment of the market. While DIIs are focusing on the broader market, FPIs have begun pumping money in largecaps, showing renewed interest after a four-month hiatus. Penny stocks have also been in favour, as retail investors now own around 70% of its free float as per Bloomberg Intelligence, while the promoters orchestrated a stock sale aggregating to over Rs 20,000 crore. The selective approach of various categories of investors to different segments of our market has indeed been a boon, as majority stocks big or small are delivering returns for shareholders across the board.
But typically, such a momentum-driven surge is a signal to exercise caution as valuations have moved ahead of their fundamentals. At this point, any news flow could have triggered the selloff and, hence, the friction in midcaps and smallcaps mid-week. However, this was just a pause and the rally should continue for some more time.
Event of the week
July witnessed a 16.42% year-on-year spike in the number of policies sold within the life insurance space, while the premium collections declined 11.1% in the new business premiums during the same period. Further, life insurance players took a massive hit on their bottom lines, when the number of claims surged to 3-4 times during the second Covid-19 wave. But this doesn’t spark grave concerns given that the pandemic has significantly transformed this industry into a pull product rather than a push product. People resorted to purchasing additional policies on back of heightened awareness of life insurance being a necessity. And given that our insurance premiums as a proportion of GDP vs. developed nations is still low, India offers a long runway.
Therefore, the potential in life insurance remains huge, and with the traction it has achieved in recent times, trends are likely to improve going forward once the situation normalises.
Technical Outlook
Nifty50 tasted a new milestone of 16,500 this week, thanks to follow-up buying, after the consolidation breakout of key resistance at the 15,950 level. Markets in general are trading bullish, in sync with other major global indices. There is good upside potential as long as the 16,200 level is not broken, which is an immediate support on declines. Traders are advised to maintain a bullish outlook going ahead.
Expectations for the week
Majority of India Inc’s first quarter results have been stronger than anticipated and in the absence of any big event, global cues are expected to drive the market direction. Though WPI numbers would be announced in the coming week, markets are expected to take them with a pinch of salt. Investors are advised to keep a safe distance from securities where valuations seem unreasonable, instead they should ride the bull wave only on fundamentally sound firms.
Nifty50 closed the week at 16,529, up 1.79%.
