A Tale of Two Markets
The frontline indices have endured to stay in the broad range and have continued to display the same pattern of moving lower a day or two, which is then followed by an equal amount of up-move in the subsequent trading sessions. However, the broader markets have stayed buoyant, and this is what we have been advocating to our readers since the last couple of months. Similarly, as regards the market trends, the second wave of the pandemic in the country has led to some divergent trends with daily infection cases in Mumbai on the decrease even as other states and cities have shown an upward spiral.
Recently, Karnataka saw over 50,000 cases, marking its biggest single-day surge and overall the country continues to top the world in daily cases and deaths. Meanwhile, with the continued outperformance from the broader market i.e. Nifty Mid-Cap and Nifty Small-Cap, one theme that has stuck out as clear as day is that there really are two separate markets in Indian stocks right now. So here is a glimpse of what we are talking about. The Nifty is up by nearly 5 per cent year-to-date while Nifty Mid-Cap is up by 18 per cent year-to-date and Nifty Small-Cap is up by a staggering 22.5 per cent year-todate.
However, if we narrow down the comparison from the day Nifty 50 scaled a record high of 15,431.75 on February 16, 2021, Nifty is down by nearly 4 per cent and on the other hand, Nifty Mid-Cap is up by 5.7 per cent and Nifty Small- Cap is up by nearly 8.8 per cent. Hence, if you are looking at only the broader market performance since mid-February 2021, you would think that the markets are in a great shape and consolidating gains through time. However, if you move up the market-cap scale, i.e. move to the large-cap index, you can see concerns and a not so rosy picture. Digging deeper will help us to understand this more. In the Nifty Mid-Cap and Small-Cap indices more than 50 per cent of the stocks were trading above their 50 DMA and in the Nifty 50 index less than 50 per cent constituents of the index were trading above their 50 DMA.
The stocks which were trading above their 50 DMA were primarily from the pharmaceutical and commodity sectors. The sharp rise in global commodity prices, and consequently elevated inflationary expectations, have been fuelling a rally in commodity stocks, especially metals and agro commodities. One of the highlights of the week was the unscheduled press conference by the Reserve Bank of India (RBI). The RBI governor admitted that the pandemic has recently intensified in India and this intensification could derail the still fragile economic recovery. However, the governor has reassured that it is there to take proactive steps, trying to infuse some sense of optimism in these dark times.
Though the RBI governor’s announcement did not include blanket moratorium, one of the important announcements made during the press conference was about the on-tap liquidity window of Rs 50,000 crore with tenure of up to three years to boost provision of immediate liquidity for ramping up pandemic-related healthcare infrastructure and services in the country. Along with this there was major news coming from the Joe Biden administration that the US will support an initiative at the World Trade Organization (WTO) to waive off Trade Related Intellectual Property Rights (TRIPS) protection for vaccines. This is extremely positive as vaccines will be cheaper and will be available faster because they can then be replicated in many other plants in India as well.
Overall, we expect the index to remain choppy and volatile within the broad range unless the Nifty takes a decisive turn in either direction. On the way up, a decisive move above 14,880 can be considered as an initial sign of strength, which can help to expand the up-move towards the 15,000 level, whereas a close below 14,440 can act as the harbinger of a bigger cut with initial targets placed at around 14,150. The broader markets would continue to remain in action but we would advise investors to be selective and follow proper risk management rules in the coming weeks.
