Markets in Consolidation Mood
It may seem ironic but even with the virus pandemic continuing to spread in mysterious ways and fatalities on the rise, the equity markets are moving ahead with a mind of their own. Is it because there is a rising hope of a vaccine that may soon vanquish the virus? It seems so! But how far will this optimism push the markets into a higher orbit is a question that most investors and traders have uppermost in their thoughts. There is pressure on equity prices globally with the Chinese data showing uneven recovery and the Euro zone feeling that the support declared so far for the economy to recover may not be enough.
The economy in China grew by 3.2 per cent in the second quarter of the year, beating analysts’ expectations and reflecting speedy recovery. However, retail sales in June in China turned out to be tepid, thus displaying lack of confidence in economic recovery. Chinese companies gained ‘massive market share’ due to increased exports while the rest of the world was locked down. Investors must note that China started easing lockdown measures relatively earlier than other countries. Hence, the recovery and growth story of China post the virus outbreak is a lesson for other countries and is an indication of how the recovery curve may look like once the economies emerge from the lockdown phase.
The Indian markets have underperformed the global markets on YTD basis and can be expected to remain one of the underperforming markets going ahead due to the increased patchy lockdowns that do not allow the economy to open up completely, thus impacting steady economic activity and growth. Investors can hope to see some change in leadership in markets with banking stocks and financials expected to underperform going ahead. Already IT stocks are showing relative strength and steel sector stocks are showing some resilience in the current market situation.
Nifty IT index is the second best performing sectoral index after Nifty Pharmaceuticals in 2020 so far. Nifty IT index is up by 8.13 per cent on YTD basis while Nifty Pharmaceuticals is up by almost 29 per cent in a similar period. The only other sectoral index that is trading in green is Nifty FMCG, which is up by 3.52 per cent on YTD basis. Nifty banks and Nifty PSU banks remain the worst performers on YTD basis with Nifty banks dropping by 33 per cent and Nifty PSU banks going down by more than 44 per cent on YTD basis. Nifty is down by 11.73 per cent on YTD basis.
Such a sectoral performance may continue going ahead and explains why investors need to remain cautious while taking exposure in banks and NBFCs. Meanwhile, Reliance Industries Limited (RIL) is grabbing the headlines and can be expected to remain in the limelight going ahead along with bellwether IT stocks such as Infosys, TCS, HCL Technologies, etc. The key benchmark index i.e. the Nifty is placed at the edge of moving below the trend-line support at 10,600. At higher levels the intermediate resistance is intact at around 10,800-10,900 levels if we consider the weekly or monthly timeframe.
It does look difficult for the Nifty to easily surpass those levels on the higher side as the short-term trend is slightly weak. One can expect the selling momentum to pick up if the Nifty were to slide below the 10,550 level. At times when markets have recovered almost 43 per cent from their March lows, there is a good chance that they can consolidate a little before inching up once again. Any negative news, whether on the US-China front or corona virus-related, may make the market jittery, thereby pushing the stocks lower. The market setup suggests that it’s a ‘buy’ in dip markets and hence every major dip in the market can be used to accumulate quality shares.
