Editorial

Time To Wait For The Markets To Find Direction

Indian benchmarks are flying high, but on whose wings nobody knows. The stock market participants have hardly benefitted from the peaking of the major indices lately, as the diverse but handful of stocks have been performing each day. The corporate earnings have acted as toppings to the volatility, with results-specific stocks giving extreme upside or downside. The results season has kicked off with IT, banking and NBFC stocks, where the IT earnings have been priced in and, therefore, there stocks are witnessing profit-booking at higher levels, NBFCs have witnessed breakouts, while banks have seen recovery and are inching, up, except the PSU banks. However, the government recently announced capital infusion of Rs 11336 crore in five PSU banks. This has helped cushion the share prices at their crucial support levels, though on a provisional basis.

Secondly, the broader market stocks on which most of the market participants were relying for wealth generation in 2017, have drowned in the market whirlpool. The mid-cap and small-cap indices are still trading at lower tops and lower bottoms, after reclassification by the mutual fund houses and SEBI's additional surveillance measures. The indices had performed exuberantly and consistently since the bounce-back in December 2016, until the government announced the Union budget after which the indices have corrected nearly 40%. Nevertheless, recently the insurance behemoth LIC seems to have refurbished its portfolio by selling off its holdings in the known companies and entering the less known ones, that too from the broader markets with sectors declining to attractive valuations. LIC has been purchasing throughout April-June in banks, metals, cement, OMCs, power, logistics, chemicals etc.

Talking of the macroeconomics, the telescopic view of the Nifty and Sensex looks buoyant. All thanks to the retreat in the global crude prices and the rupee temporarily moving off its all-time low. Further, domestic macros with continued robust auto sales and revival in PMI numbers had supported the markets earlier. However, the markets have turned dicey yet again after the government announced the CPI and WPI numbers hitting multi-month highs due to the previous fuel price rally, despite the easing of food prices. Even the expansion in trade deficit along with the inflation numbers have bewildered the markets yet again. It is just the positive guidance for FY19 and outlook in the production numbers along with GDP outlook that has kept the markets going.

All said and done, it is a hard time for the market participants to decide whether to be or not to be in the markets. All they can do is neither be greedy, nor fearful in these market conditions. Just book early profits and exit major losses without waiting for further upside and avoid trying to catch the falling knife on expectation of a reversal. For the near term, investors can go for the stocks with better Q1 earnings reports, despite profit-booking at higher levels like in IT and growth sectors and keep away from swimming against the tide for the time being. Few mid-caps and small-caps may look attractive, but on the broader front, bottom-fishing opportunities in the indices are still hazy.



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