Are Indian markets anywhere close to euphoria or exuberance?
Nifty traded in the range of 16,162-16,360 during the initial part of the previous week. Though the index witnessed significant intraday volatility, it managed to close flat in those sessions. However, on Thursday, the bulls made their mark as the index witnessed a decisive buying interest after closing up by half a per cent as well as above the 16,350 mark.
The momentum continued on Friday as well while ‘Friday, the thirteenth’ turned out to be a myth as the index gained over a per cent. Furthermore, it closed above the 16,500 for the first time ever in history. For the week, Nifty gained 1.79 per cent. Despite such a strong move, the market participants were somewhat gloomy.
If you’re wondering as to why the market participants turned gloomy, then it was nothing, but the underperformance made by the broader markets. For the week, Nifty Midcap and Nifty Smallcap ended down by 1.24 per cent & 2.20 per cent, respectively. Though the correction in the broader indices was in a single digit, many stocks witnessed double-digit corrections in just a matter of few days. So, currently, we are witnessing a scenario where the market is having a split personality. The top 15-20 stocks are seen doing something while the rest of the stocks from Nifty 500 basket are seen doing something completely contradictory. It is typically a market capitalisation rotation, which is a part & parcel of a bull market.
Earlier the complaint was that the top heavyweight stocks from Nifty 50 were not participating while the rest of the stocks from Nifty 500 index were having a ball. This chronicle would continue where we see passing the torch of leadership from one sector to another. You cannot have a state where the whole universe does well at the same time. And, if all the stocks begin doing well, then it would be termed as a complete euphoria.
Thankfully, we are not there yet due to a lot of skepticism around. However, Nifty 50 index charts continue to be positive. The charts of top heavyweights are in a good shape whereas, for some mid-caps and small-caps, they are distorted. One needs to follow due diligence before committing to stocks from this space.
On the sectoral front, Nifty IT chart looks fabulous, and it seems that there is more steam left in these stocks. Hence, keep a close watch on quality IT names for investment. Another index that is displaying positive signs is Bank Nifty.
Currently, the banking index is seen facing resistance in the band of 36,200-36,350. Expect some fireworks once this zone is pierced on a closing basis in the near term. Historically, we have seen that when IT and banking stocks do well at the same time, it’s a joy ride on D-Street. Our view on the market stays bullish, considering the current structure of the charts. At the same time, we would say that it would be a stock picker’s market. Hence, don’t get influenced by intraday action. Look at the bigger picture! And more importantly, follow the concept of Dow Theory, which says that if an index or a stock is making higher highs & higher lows, stay with it, irrespective of scary news flow and valuation concerns on the ground. That’s because price action is the best testimony of a trend!