Stay Invested to Reap from a Rally Revival
Benchmark NSE Nifty 50 index has posted its best quarter performance since 2009 in the period of April-June 2020 with a surge of nearly 20 per cent. Its performance for the month of June 2020 also remained robust as Nifty registered gains of 7.5 per cent. The market breadth was top-notch too as the advance decline ratio for June stood at 1.41. While outpacing the Nifty, Bank Nifty recorded a double digit gain of 10.74 per cent in June. Further, in the same month, all the components of Bank Nifty ended in the green. If this was not enough, the broader markets surprised everyone with Nifty Mid-Cap and Small-Cap jumping 10.78 and 15.29 per cent in June.
India VIX, a barometer of the market’s expectation of volatility over the near term, declined for the third straight month. With the dawn of July, the bulls have continued with their rock-n-roll mood given the fact that the most recent news emanating from across the globe are acting like music to bulls’ ears. In the domestic arena, the latest round of data indicates a bottoming out, indicating that India is on the right path of recovery. The GST collections for June stood at Rs 90,917 crore.
While this might a third straight month of decline year-on-year, the positive takeaway is that the rate of decline has come down considerably to just 9.02 per cent from 38.17 per cent in May and 71.63 per cent in April as returns for the earlier months were also filed in June on account of the relaxation period provided by the government due to the outbreak of the virus pandemic. Further, the manufacturing purchasing managers’ index (PMI) increased to 47.2 in June from 30.8 recorded in May. On Wall Street, tech-heavy Nasdaq posted a record closing high. The sentiment on Wall Street was elevated by the news of Pfizer and BioNTech announcing positive data from a vaccine trial.
Further, June also witnessed the ISM manufacturing index unexpectedly soaring back into expansion territory. Also, market participants were all tuned into automobiles sales for June as this was one of the factors relied on to give a clear signal of real green shoots in the domestic economy. Two-wheelers and tractors were the two segments that displayed an optimistic trend. Hero MotoCorp, the country’s largest two-wheeler maker, recorded a quadrupled increase from the previous month. The company said that a major part of the market demand is surfacing from the rural and semi-urban regions.
If you recall, in one of our editorials we had highlighted the role rural India has to play in the revival of the economy on the back of a normal monsoon and a bumper Rabi crop. As such, the recent incoming data is acting as a soothing balm to the otherwise virus-triggered ruffled nerves. Technically, the benchmark Nifty is very wellpoised for another round of up-move after it has broken out of the shackles of a four-day consolidation pattern. Though we are witnessing demand revival in select areas, in some cases it is still lower compared to the prepandemic levels.
Hence, traders and investors should continue to be positive but adopt a cautious approach. Meanwhile, the Nifty Price Earning (PE) ratio has reached the 26.97 level, which is a bubble zone. The performances of the banking pack would play a pivotal role in the next directional move as other sectors, by and large, have done their part. We would advise traders to focus on proper risk management techniques and not take over-leveraged positions while investors also should keep their focus on quality stocks. Investors and traders should also keep an eye on the India Volatility Index (India VIX), which is currently below 30. As long it stays below the 30 mark, bulls would continue to sail, while on the other hand, consistently staying above the 30-mark would give the first indication of a surge in volatility. It would be better to stay on the sidelines then!
