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Below is the Views On Equity markets continued its slide with Nifty ending below the psychological level of 12,000 By Mr. Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Private Ltd
“Equity markets continued its slide with Nifty ending below the psychological level of 12,000, after the RBI kept the policy rates unchanged, taking market by surprise. Both the Sensex/Nifty closed down 0.8%/0.9% at 40,445/11,914. All the sectors closed in red with PSU banks being the biggest losers with fall of more than 4%, followed by followed by Pharma, Cement, Telecom media, NBFC and Auto stocks. Market sentiments turned negative as investors get worried over the prolonged slowdown in the economy. Banking stocks declined sharply on concern of rising G-Sec Yield which spiked 15bps in the last two trading sessions to 1-month high of 6.66%.
RBI’s status quo confirms that it is prioritizing rising inflation over grim economic growth. We expect the inflation to remain close to or above 5% by Mar’20, which means that a rate cut in the next MPC in Feb’20 is highly unlikely. Further, We continue to maintain that there will be no more rate cuts now unless inflation falls back towards 4%. Thus there is a good probability of a prolonged pause over the next 3-4 quarters. Market is likely to remain range-bound in the absence of any major trigger. Further Nifty50 valuation at 17.4x FY21 captures the sharp earnings recovery expected in FY21 and leaves limited room for upside, given the downside risks to the earning estimate. Thus we continue to prefer stocks with earnings visibility coupled with balance-sheet leadership.
Technically, Nifty breached its crucial support of 11950 and formed a big red body candle on daily chart. We also witnessed breakdown from Head and Shoulder pattern on hourly chart, which doesn’t bode well for the bulls. On weekly scale, it formed a Bearish Engulfing pattern and a sustainable move below 11888 may lead to a correction towards 11800 and then 11700. On the flipside, immediate hurdle is placed at 12050 and 12100 levels.”
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