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Published on 3/12/2021 5:44:46 PM | Source: Samco Securities Ltd

Immediate support and resistance for Nifty 50 are now placed at 16,850 and 17,600 By Ms. Yesha Shah, Samco Securities

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Below is the weekly article on Market By Ms. Yesha Shah, Head of Equity Research, Samco Securities 

Jitters from the recent collapse witnessed have seeped into the first half of the week. However, as markets began to rebound with similar enthusiasm, it seems that D-street has started shrugging off these anxieties. Investors had reason to smile after seeing good economic statistics such as 8.4% GDP growth in Q2 and a manufacturing PMI of 57.6 reaching a 10-month high. On the other hand, the Street calibrated concerns about the economic risks posed by the Omicron strain and the FED's likely acceleration of tapering. Amid high valuations, inflation, and Covid-related uncertainty, the mood has shifted from 'greedy' to 'fearful' in recent weeks.

Investors should understand, however, that such declines are not unusual. So far, no significant correction has happened in the current bull run, which began in March 2020. Even the current dip was less than 10%, which is still smaller than the previous bull-run average corrections. For example, while our benchmark indices rose by 4x during the 2004-2008 bull run, there were over 6 corrections with an average downside of 15% during the same period. In fact, one loss was as deep as 30%, and it took almost 25 weeks to recoup the high prior to the correction. Even during the 2009-2010 rally, when markets more than doubled, there were four corrections with an average decline of 12%. History frequently repeats itself, and if we draw inferences from the past, we can say that corrections are deemed healthy during a structural bull run. As a result, while the larger bull market in India appears to be intact, investors should be patient since it would be unwise to anticipate the markets to surge as quickly as they have since March 2020. Rather than panic-selling amid such turbulent markets, investors should take advantage of this opportunity to top-up their investments in financially resilient and high-quality companies.

Event of the week

The November auto sales numbers indicate that the festive season was not as cheerful for automakers. PV segment witnessed a rough ride as chip shortages continue to hamper production. Two-wheeler sales were adversely impacted on the back of lower footfalls and weak demand off take as the wedding season approached. Delayed Kharif harvest, uneven rural cash-flows and a high base led to weak tractors numbers. On the other hand, the CV segment was resilient with strong growth on yearly basis, however its numbers were a little disappointing on MoM basis. In terms of future outlook, the growth momentum of CV remains strong with a pick-up in the economy, infrastructure, construction and mining. Even the demand outlook for the PV segment is optimistic whereas the two-wheeler segment, especially the entry level segment, is expected to see lacklustre demand.

Technical Outlook

After a big bearish candle in the last week, the Nifty 50 index closed positive as compared to the last week, and is trading around the support of 20 EMA on the weekly chart. While this bounce can continue for a few weeks, the correction witnessed has done notable damage to the ongoing momentum. Nifty continues to trade below its rising trend line which had been supporting the uptrend thus far. Traders are therefore advised to maintain a cautious to mildly bullish outlook and to maintain a strict stop loss below the 16,850 level. Immediate support and resistance for Nifty 50 are now placed at 16,850 and 17,600.

Expectation for the week

With a slew of events on the horizon, traders should brace themselves for an action-packed week. Market players will attempt to read between the lines of the RBI's monetary policy outcome. The Governor's inflation comments will provide insight on our economy, inflation issues, and any future measures our central bank may make. Inflation data for China and the United States are also due next week, which may add to the market volatility. Additionally, as more clarity on the new Covid-19 version becomes available, investors can expect whipsaw movements in the markets. The Nifty50 closed the week at 17,196.7, up by 0.84%.

 

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