Bears Inch Closer but Make a Hasty Retreat
The Indian benchmark indices kicked off the week with a big gap down amidst below street expectation earnings reported by index heavyweights Infosys and HDFC Bank. Infosys opened below its important long-term moving average of 200 DMA and it touched levels which were last seen in the month of July 2021. Meanwhile, HDFC Bank opened below its March swing low. So, these two heavyweights along with fragile global cues led to a severe fall in the market for the first two trading sessions of the current week. Nifty plunged nearly 3 per cent and as a result, it closed below its important long-term moving average of 200 DMA.
With this, once again market participants had this question in their mind: ‘Is there a bear market lurking in the shadow?’ But, very soon the tide changed its course and the market recouped bulk of the losses in the next couple of trading sessions. Interestingly, in the first two trading sessions, it was Infosys and HDFC Bank that together took the markets down the hill, while on the other hand, the blue-eyed boy of D-Street i.e. Reliance Industries rose to the occasion and helped the market to recover.
The stock of Reliance Industries has jumped nearly 9 per cent on WTD, which is one of the best performing weeks for the stock since September 2020 and with this the stock marked a fresh all-time high. It’s not just that the blue-eyed boy of D-Street has marked a fresh all-time high; there are many stocks from the broader markets which have joined the party of hitting the 52-week high and fresh all-time high as seasoned and active traders have shifted their focus now on cyclical businesses like paper, cement, sugar, rice, energy, etc. The global food shortage and estimates of a normal monsoon have aroused interest in agro-chemicals also.
Given that a huge proportion of stocks in these sectors are from the small-cap and mid-cap segments, floating stocks are not substantial and institutional interest is low so that the moves are sharper, which certainly is a treat for the traders! At this juncture, defence is probably the most talked-about sector among knowledgeable investors and traders. Faced with international sanctions against Russia, which is our largest defence supplier, the need to indigenize defence technology and become self-reliant in the production of weapons and defence equipment is driving the emotions.
PSUs producing for the defence sector are getting re-rated. Private players are also getting heightened traders’ attention. Also, we have talked about this sector many a times in our past editorials. Furthermore, one more sector with the rising attention is the Auto sector. Testimony of this is the fact that Nifty Auto has jumped nearly 4 per cent on a WTD basis. Traders seem to like the relative under-ownership, short build-up in the derivative segment, potential pickup in rural demand post good monsoon and underperformance of stocks over the past one year.
Meanwhile, good news from the West is that the yield on the 10-year US Treasury note fell to 2.836 per cent from a Tuesday close of 2.941 per cent, which was its highest since mid-December, 2018. Going forward, a key thing to watch is India VIX, which measures the expected volatility in the market. It has slipped below the 18 mark and as long as the VIX is sustained below the level of 20, the bulls don’t need to panic. Stock specific movements will be more pronounced in the coming week
