Benchmarks beat consolidation, broader markets still gloomy

Indian benchmark indices duly digested the disturbing global factors like rise in oil prices and dollar appreciation against the Indian rupee. Thereafter, the benchmark indices had breached their multiple resistance zone but consolidated with caution ahead of the Karnataka assembly elections and corporate result announcements. Moreover, the markets being in the midst of corporate results and consolidation was accompanied by intraday volatility. Now that the frontline results are almost over, Nifty and Sensex witnessed a relief rally on May 11, following strengthening global bourses.

Going forward, the Karnataka election results would direct the markets in the next week. Despite the positive closure of 0.8 per cent in the benchmark indices, market breadth remained slightly weak with 1,123 advances and 1,542 declines. This was in the wake of relative underperformance from the broader markets where Mid-cap index closed 0.4 per cent up, but Small-cap index ended flat to negative with 0.1 per cent loss.

There has been a tremendous divergence in the price movements of the benchmark indices and the broader markets since the start of May 2018. Whenever the benchmark bulls gave a tough fight and sustained the breakout, broader market bulls gave up and started with the sell-off on May 2 after hitting above their major resistance levels. Now, the benchmark indices are way above their major EMA support levels of 100 and 200, while on the broader front, Mid-cap is trailing at its 200 days EMA and Small-cap just closed below its 100 days EMA. With this, both may bounce back from their said levels if the coming sessions confirm a reversal.

Investors can shift their major capital again to the large-caps and avoid the broader market stocks until the indices give a reversal signal. One can still enter the stocks with positive Q4 results at a discounted price for a long-term, but avoid positional buying as the overall markets are in doldrums for now.