Bad News Mars The Markets
The Indian markets have been on a roller-coaster ride for the last one week. That said, they have remained more or less in the range we had mentioned in our previous editorial. On the upside, the zone of 11,550-11,600 is a wall of resistance and on the downside the 11,300 mark is an important support level. Yes, on couple of instances this level was breached on an intraday basis but it did not sustain below this level. Therefore, Nifty has traded more or less as per the roadmap which we had laid out in our last editorial.
This reminds us of the saying, “When it rains, it pours.” The market has had to tackle bad news in abundance over the past 5-6 days. To begin with, Goldman Sachs and Fitch Ratings projected that India’s economic recession in FY21 is expected to be deeper than estimated earlier. Goldman Sachs projects that India’s GDP is expected to shrink 14.8 per cent during the current fiscal while Fitch Ratings slashed its growth forecast for the same period to 10.5 per cent, which is more than double of the previous estimates.
If this was not enough, the border tensions between China and India escalated and so has the tension between China and the US. Due to the current geopolitical scenario, institutional selling has ballooned in recent days. The FIIs have been net sellers of equities worth of Rs 3,911.32 crore from September 4-9. Meanwhile, DIIs have been net sellers to the tune of Rs 916.38 crore. The list does not end over here. The potential vaccine for corona virus on which rested big hopes now seems to be delayed after pharmaceutical major AstraZeneca announced a pause in the late-stage clinical trial due to an unexplained illness in a participant in the UK.
Further, the corona virus tally in India has now surpassed that of Brazil on the back of adding record number of cases on a daily basis. In the face of all these grim news the bull army refuses to give up and the numbers are clearly reflecting this on the basis of a weekon- week comparison. Nifty has declined just by 0.67 per cent. With the overall market breadth over last week having deteriorated, Nifty Mid-Cap and Small-Cap have lost nearly 3.25 and 1.92 per cent, respectively. The trick to this number is that the growth engines for the post March 2020 recovery are back into motion.
Reliance Industries, which has enjoyed a leading position in the index for the week, recorded astronomical gains of nearly 9.55 per cent and hit a fresh all-time high. The Nifty IT index which had recorded almost 67 per cent gains from the March lows and registered nine higher highs as of week ended July 31 went into a period of lull for almost six weeks.However, this index has also started witnessing buying interest, not to forget that two major components of Nifty IT index are in the top five constituents of Nifty50. It makes it obvious that the market won’tturn into a damp rag.
From the technical viewpoint, the Nifty has broken down the steep sloping trendline joined from the March low. In our experience, this is the momentum of uptrend which has taken a backseat and does not mean that the trend has completely reversed. Going ahead, all eyes would be on the swing low of 11,111 and as long as Nifty stays above this level, the current phase would be considered a healthy correction. In the days to come market participants will closely watch the India-China face-off and a host of economic data which are due to be released soon. Also, global cues would influence market sentiments.
