D-Street outlook: Dalal Street week ahead: People who exit stocks to avoid declines miss big rally

Another week, another life-time high! Stock markets have been on a roll since the past few weeks with both global and Indian bourses joining in and hitting new record highs. This week was no different, with the Indian Indices marching upwards with no sign of caution. While a lot of factors contributed to this rally, the existing liquidity in the market seemed to be the key driving force.

So far in 2021, funds raised via public issues have swelled nearly 2.2 times over CY20 and there are at least 11 companies with Sebi approvals in the pipeline to raise over Rs 11,600 crore. Another 40-plus companies are looking to raise nearly Rs 89,000 crore, as they await the regulator’s nod to jump on to the IPO bandwagon to cash in on the extravagant liquidity and strong enthusiasm among retail investors.

Another factor is contributing to this inflow to India, and that is the regulatory storm being faced by Chinese businesses, which is driving investors to look at other emerging economies. These drivers led Nifty50 to record its fastest sprint of 1,000 points in just 19 sessions.

It is not that only the stock market has been recovering; other macros such as Q1GDP numbers — which rose in terms of personal consumption, exports and capex albeit on a low base, GST collections which also surpassed Rs 1 lakh crore for the second consecutive month and manufacturing PMI data, which has stayed in expansionary territory from July — have all demonstrated that the recovery theme is indeed intact.

This is certainly bolstering the confidence of market participants to keep the stocks rally going. Going with the flow (with caution) seems to be the most logical choice of action in a market like this, as Peter Lynch said: “People who exit the stock market to avoid a decline are odds-on favourites to miss the next rally.”

Event of the week
August auto sales numbers didn’t surprise Dalal Street this week. Though the numbers seemed promising on a YoY basis, on a sequential basis, passenger vehicles and tractors experienced a bumpy ride while commercial vehicles performed well. Two-wheeler sales hit speed bumps due to concerns about affordability and increased competition from EVs. What weighed on the automotive industry the most were supply-side constraints, especially the semi-conductor shortage which has further aggravated due to fresh lockdowns in East Asia.

Nevertheless, consumer demand remains intact owing to the forthcoming festive season and investors may tactically choose to build exposure to benefit from this once these supply-side disruptions begin to phase out.

Technical Outlook
The Nifty50 index posted a big bullish candle on the weekly timeframe chart and the broader indices also participated in the rally. Bank Nifty is trading near previous all-time high levels, which may act as a make-or-break situation, as the bullish movement can take Nifty even higher. But traders should take note that the current levels are showing overbought condition and mild dips would be smarter entry points. The price zone around the 16,600 mark may act as an immediate support on declines.

Expectations for the week
Domestic economic data such as manufacturing output and industrial production data could drive investor sentiment next week. In the absence of any other major event, Dalal Street is expected to mirror global cues and move in tandem with the bourses abroad. With a largely positive outlook, investors may see profit booking in stocks running ahead of their fundamentals. Investors are advised to ride this bull rally with fundamentally resilient stocks.

Nifty50 closed the week at 17,323, up 3.70%.