Optimism Rules the Roost
The market has climbed over the wall of worry and recorded a stellar rally during the last five trading sessions. The bulls were enthused by a drastic fall in the corona virus cases, in line with corporate earnings for the March quarter and buying by FIIs. Nifty recorded its highest closing while Sensex reclaimed its important psychological level of 51,000. There are several points which stand out in the last five trading sessions but the most notable is liquidity. The liquidity flow by FIIs which had entered into a lull phase in the last couple of months has once again started to blossom. Since May 20 on all the days the FIIs have been net buyers of equities.
Another interesting takeaway is that Indian indices in the last five trading sessions have outperformed the US’ markets i.e. Dow Jones and S & P 500. The US markets have not witnessed any decisive move as market participants seemed to be cautious. That’s because of the GDP and employment data. If by any chance the numbers come out ultra-strong and better than expected, it can mean that the Federal Reserve’s chatter on taper could become an actuality. Therefore, this is prompting market participants to deal with some caution at least in the US’ markets.
The earning season has been a talking point on D-Street and interestingly BPCL is going to leave a very sweet taste in the mouth because of its dividend. The company has recommended a final dividend of Rs 58 per equity share, including one-time special dividend of Rs 35 per equity share. The special dividend pertains to the proceeds collected from the shares sold by the company belonging to BPCL Trust. However, on other hand, Manappuram Finance Limited has provided a real picture of the scenario at the ground level. The company has reported that it has auctioned a whopping Rs 404 crore worth of gold to recover money in the fourth quarter.
Just for comparison sake, during the nine-month period ended December 2020, the company had auctioned Rs 8 crore worth of gold. So, what does this indicate? Is there genuine trouble at the bottom of the pyramid or at the bottom rung of borrowers? Meanwhile, some interesting news during the week included the fact that the Reserve Bank of India (RBI) will transfer Rs 99,122 crore as surplus to the government for the nine-month period ended March 31. The amount transferred is higher than market expectations and any additionally liquidity would help cushion the fiscal deficit burden for the government. This move is positive for the markets.
Further, the metal sector too has been in the news. Since the beginning of CY 2021 there were only some weeks when Nifty Metal relatively underperformed the benchmark indices. However, in the past one week it did underperform the benchmark indices by a wide margin. The Nifty Metal index, which was seen roaring lion-like till early May 2021, hit breaks as major foreign brokerage Credit Suisse downgraded its stance on the sector to ‘underweight’. The Nifty Metal index is trading below its 20 DMA for the first time since late March 2021. Hence, we continue to reiterate to not take an overleveraged position in commodities-related stocks.
With metal stocks taking a backseat, it time for other big boys to take charge and if we analyse the breadth of large-cap stocks, we get to see their breadth improving. The 20 DMA, which is one of the most important and simple barometers followed by traders to gauge the short-term trend, indicates that 41 stocks out of Nifty 50 stocks have traded above their 20 DMA, whereas almost two weeks back only 30 stocks were seen trading above the 20 DMA. Furthermore, there has been pick-up in the stocks making new 10-day highs, which is yet another barometer used by traders to gauge the short-term trend. Overall, the trend is rock solid and with the expectation of a state-wise economy unlocking in the near future it is likely to keep the sentiment buoyant.
