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Published on 29/11/2019 5:55:40 PM | Source: SAMCO Securities

Weekly note by Jimeet Modi, SAMCO Securities & StockNote.

Posted in Expert Views| #Expert Views #SAMCO Securities

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Below is the Views On Market Performance By Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote.

Markets seem to have achieved a sort of mini-euphoric phase given the relentless rally of about 3 months without any significant correction. Various polls suggest 90% of people are bullish that markets will touch new highs by Christmas, FPIs have increased their bullish bets on Indian equities whereas net purchases till the third week of November totaled to Rs. 17,548 Crs. Moreover, IPOs are frantically getting oversubscribed; new ones are also buzzing and ready with the same energy. Ideally, these are euphoric states which make ‘herding’ more conspicuous; buying when markets are going up. Nifty rollovers too, were at a high of 3 months average. It’s needless to say that this is the time to be cautious and book some profits off the table when euphoric factors are visible.   

Moving on to a specific sector, a breakthrough was resolved in the Pharma space wherein domestic drug industry agreed with government’s proposal to allow a 30% cap on margins of non price-controlled drugs. This eventually took away obnoxious pricing decisions out of the hands of Pharma Biggies which is a big negative for free market economy. Had this event transpired at the sector peak, pharma stock prices would have crashed. But the fact that it occurred when this sector is already down led to a neutral reaction by these stocks. This certainly gives an indication that a major bottom has been formed in the sector and it would be safe to play cards on stocks which are hitting 52-week highs, because if such restrictions in profitability could not take the prices lower, what else would.

 

Event of the week

Steel sector was in limelight wherein companies have indicated that they have already raised prices by Rs. 500 per ton and a price increase of Rs. 1,000 per ton is underway. But the steel prices have already increased by 20% in the international market and in high beta stocks, prices have already risen by 50%. Hence, when such events become talking points of D-street, it can best be assumed that it’s time to move out of the sector, book profits and re-enter at lower levels.       

 

Technical Outlook

Nifty50 has a made a failed double top a powerful pattern to signal that correction has set in. Nifty Private Bank index has made a clear double top whereas, Midcaps and Small Caps Indices are diverging with the current rally in Nifty50 indicating overall weakness in the market. Momentum indicators had already weakened a few days ago, but now with a strong down move, the market is expected to head lower. Traders may short Nifty50 with a Stop above 12180. 

 

Expectation for the week

RBI Monetary Policy Committee (MPC) would meet next week to review interest rates and given the inflationary trend, there is likelihood that a 25 bps rate cut may not follow but in order to tackle slowdown, rate cut is the only tool available with the RBI, thus it will be a tough call for the MPC to take. But US Fed is not expected to reduce the rate this time given the recent commentaries by Fed Chairman. The buoyancy in the bourses will bring in more IPOs which could benefit retail investors but will impact secondary markets in terms of liquidity which may lead to a correction in overheated stocks. Investors should calm their nerves and wait for a correction before investing. Nifty closed the week at 12056, up by 1.2%.       

 

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