When Red Turns Green, Its Time to Move
Over the last couple of weeks, the financial markets have witnessed every bit of emotion right from despair to hope to euphoria – in fact, the scenario has been straight out of a Hindi potboiler film. From a state of fear we have swung to a form of greed. And yet again, the ones who bought during the dip are going to have a hell of a party over the long weekend as Nifty index has rallied over 10 per cent from its lows of March 8. As a result, the index has moved above its important long-term moving average i.e. 200 DMA and is currently trading 1.70 per cent above its 200 DMA.
Therefore, this brings us to the question about what led to such a swift rally in the market and that too in a short span of time. To begin with, the foot in the door for the bull was provided by the BJP’s convincing win in four of the five state elections, which was then followed by the retreating of international crude oil price from its recent highs while the cherry on the top was media reports of talks between Russia and Ukraine. Also, the positioning of the big boys i.e. FIIs was in such a manner that their positions in the market reflected their pessimism and they had all the right reasons to be so as the market was gripped with a number of fear factors in the last fortnight or so.
However, all of a sudden, the bold bear got scared due to the above mentioned reasons and they found themselves swimming against the tide, as a result of which there was no other option left for the big boys but to lighten their short positions. And when these big boys start to cover their shorts, the market witnesses such kind of moves. As the saying goes, “A scared bear is the biggest bull.” Moreover, they too have joined the bullish bandwagon and the testimony of this is that they were net buyers to the tune of Rs 311.99 crore on Wednesday.
The good news does not end over here. The market in the course of the week witnessed buying across the board and the proof of this was that all the sectoral indices ended in green for the week, except for Nifty Metal, which saw a modest cut. Nifty Auto and Nifty Financial Service were the top gainers. Bank Nifty relatively outperformed the Nifty as it jumped more than 5 per cent for the week. The broader market indices also ended the week in green, though they have relatively underperformed the Nifty with Nifty Mid-Cap and Small-Cap adding 2.2 and 1.1 per cent, respectively.
Interestingly, Nifty Mid-Cap index has witnessed breakout of neckline of a double bottom-like pattern and it managed to close the week near the high point of the day. Sustenance at the current level is likely to attract stockspecific outperformance. The scene from the west looks buoyant as well. On Wednesday the US stocks rallied for the second straight day with the Dow rebounding nearly 700 points from the day’s low after the US Federal Reserve pulled the trigger on its first interest hike since 2018 in a move that matched expectations. The Federal Reserve projected that inflation would average 4.3 per cent at the end of 2022, up from its prior 2.6 per cent forecast.
The important take-away from the US Federal Reserve meet was that they left no uncertainty on the table at least at this point in time. In their mind they are very clear that inflation needs to be tackled and they are going to do this expecting growth to be able to withstand all that is coming. Certainly, the tape looks quite buoyant at this point of time and hence greed is back on D-Street. This reminds us of a famous dialogue from the Hollywood hit ‘Wall Street’ wherein Gordan Gekko says, “Greed is good”. However, it was not long back when we saw the tables turning wherein the markets witnessed a sharp cut and we were left pulling our hair out. Hence, it is prudent to have a balanced approach and invest only in those stocks which have good prospects and offer a margin of safety.
