“Indian equity markets rebounded smartly today by around 2% after a fall of 1.6% yesterday. Markets gained on the back of positive global cues, buying in index heavyweights and due to some short covering as well. Nifty opened positive and witnessed sustain buying interest throughout the day to close above the crucial 11,000 levels. Nifty gained 204 points (+1.9%) to close at 11,095. Gains in Nifty were largely contributed by 2 index heavyweight - Reliance Industries and HDFC Bank which together contributed almost 160 points out of the 204 point gain on the Nifty. Reliance Industries was up 7.5% - its biggest single-day gain in almost four months, while HDFC Bank was up 3.8%. India VIX cooled down by 6% to 23.8 levels.
Global cues were positive on the back of strong US manufacturing data and increasing hopes of new stimulus plan amid the rising global Covid-19 cases. U.S. manufacturing activity accelerated to its highest level in nearly 1.5 years in July to 54.2 from 52.6 in June. Also NASDAQ touched record highs on back of news on Microsoft’s acquisition plans of Tiktok’s US operations. On the domestic front, Banking stocks witnessed some buying interest after yesterday’s fall ahead of the RBI monetary policy on 6th August. The corporate results so far has been in-line to better than expectations. Moreover management commentaries suggest that companies are implementing cost rationalization measures across key sectors to protect EBITDA margins and the bottom line given the uncertainty.
Markets in the meanwhile have seen significant recovery from Mar’20 lows. In fact, Nifty ex-BFSI has crossed pre-COVID-19 levels. Nevertheless, we find the risk-reward unattractive with valuations at 21x one-year forward Nifty EPS. Hence, we would advise investors to remain defensive in their portfolio approach. Traders on the other hand are advised to stay cautious and keep booking profit at regular intervals.
Technically, Nifty has formed a Bullish candle and negated the formation of lower high - lower lows of last three trading sessions. Now, if it managed to hold above 11050 zones then buying interest could emerge towards 11250 zones while on the downside support exists at 10900-10880 zones.”
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