The Fear Factor Is Subsiding But Don't Be Complacent!
The front-page of all the newspapers seem so gloomy and disheartening these days. Rather, the entire newspaper is filled with news like COVID-19 surpasses 1.5 lakh mark, tension surfaces in Ladakh after China brought more troops, devastation caused by cyclone Amphan, unusual heat wave in North India or CRISIL projects’ five per cent contraction in India’s GDP in FY21 and so on.
However, if you turn to the business section of the newspaper, your mood will comparatively be a little lighter as despite all these distressing news, the markets are roaring higher.
Nifty has reclaimed its 9,400 mark, owing to the massive gains of three per cent, registered on Wednesday. However, the showstopper of the recent rally on D-Street has been the banking and financial stocks as Bank Nifty jumped over seven per cent on Wednesday and recorded one of its biggest single day gains since March 25.
The major indices on Wall Street too were gripped with bullish tone as Dow regained its important psychological mark of 25,000 and S&P 500 surpasses 3,000 mark and closed above its 200-day moving average, a much-watched technical indicator. We had clearly mentioned in our last editorial that it’s not the time to be bearish as long as Nifty stays above 8,800 mark and we hope our readers must have benefitted from it.
Easing of lockdown restrictions may be the cause of positive narratives for the markets in the last couple of days as hopes of some sort of rebound is likely to be seen in the economic activity. Other factors may be the fiscal and monetary policy relief that Japan is injecting with its $1 trillion into its economy in order to protect it from the effects of Coronavirus pandemic. Along with this, European is also planning to launch a massive stimulus program for the region’s recovery.
In India, the central bank, Reserve Bank of India (RBI) announced a repo rate cut by 40 bps, which will infuse liquidity into the system in such a challenging time. Indian repo rate is now almost the same, as that of China, which is at 3.85 per cent. Also, the reduction in reverse repo rates will discourage banks to park idle money with RBI and lend further. Further, RBI announced the extension of moratorium by another three months to August 31. This could mean that now, the clarity on asset quality picture of the lenders will be delayed. We expect more policy response from RBI in the future, in terms of further rate cuts to prevent the current short-term Corona recession turning into a prolonged economic depression.
Wednesday’s mammoth move by Nifty aided the index to breakout above the falling trendline, drawn by joining April- May highs. Also, Nifty has now moved above its important moving average i.e. 20 and 50 moving averages. It is trading 2.88 and 5.60 per cent above its 20-DMA and 50-DMA, respectively. Similarly, US markets have moved above 61.8 per cent retracement levels of the recent fall from February. We believe that Indian markets are likely to catch up and continue their upward movement towards the level of 9,840- 9,970 in the medium-term.
We were placed into pharmaceuticals stocks right at the inflection point and reaped good benefits for our readers. Now a new theme, which looks in good momentum in the current scenario for the medium-term is the pesticides & agrochemicals. Stocks of pesticides and agrochemicals manufacturers were seen booming as selected stocks hit a fresh all-time high recently. The key catalyst for this sector is the large swarms of locusts seen across the states of Madhya Pradesh, Rajasthan and some parts of Maharashtra in the past few days, which is likely to create an additional demand for agro-chemical companies in India.
We would recommend fresh buyers to enter these stocks on a retracement but for those, who have already invested in these stocks, can remain invested.
Going ahead, the market participants will keep an eye on GDP announcement during the period of January to March as well as on the development between US and China.
