Published on 27/06/2020 11:50:29 AM | Source: SAMCO Securities Ltd

Market approaching an intermediate top - Article by Mr. Jimeet Modi,SAMCO Securities

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Below is the Quote On Market approaching an intermediate top - Article by Mr. Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote


Market approaching an intermediate top

During the week, markets got a reality check and cracked heavily but thereafter recovered mildly on back of buying from foreign institutional investors at lower levels. Most of the sectors have exhausted their bull power, especially the Pharma sector wherein a barrage of fundamental triggers like launch of drugs for COVID-19 in India by Glenmark Pharma, Cipla as well as other relaxations in export restrictions are now unable to take the Pharma basket higher. Therefore, the corollary is that all the buyers have almost exhausted their power and the sector is heading for a long-drawn consolidation. Additionally, if earnings for the coming quarter do not come in line with the swift rally, this sector may see cracks in the prices. It is also expected that the government and RBI might again come out with measures to revive the sluggish economy which would hopefully keep the bulls on high spirits but this may not culminate into higher stock prices. International events are at times fearful but at other times it seems like this is only political posturing and nothing substantial at ground level will happen to damage global economic prospects. But fingers crossed on this front!

Surprisingly, the IMF also commented that financial markets are not aligned with realities and financial assets can correct by around 10%. Other international agencies have also revised growth targets, expecting a further cut in the growth prospects of the Indian economy due to the aftermath of strict lockdowns. Given the quantum of helicopter money printed by the US, Gold looks to be better poised for giving positive returns. Investors are advised to allocate some (10-20%) portion of their assets to gold atleast for the next 3-5 years.

Event of the Week

Petrol and diesel prices have been continuously increasing since last few weeks. What comes as the biggest shocker is that diesel and petrol prices have more or less aligned which is a big negative for freight and transport sectors which are already struggling to find enough load to get trucks back on road and juggling with shortage of drivers, the second effect is the deep cascading effect on the entire economy. Higher transportation costs would bring in higher inflation which might impede RBI’s ability to reduce interest rates and distort consumption. This would impact consumption as higher inflation and lower returns on savings would reduce purchasing power affecting the much-needed demand revival of our crippled economy. This is not a good sign!

Technical Outlook

Nifty 50 after rallying almost 38 percent from the lows has formed a spinning top candlestick pattern indicating a moment of indecisiveness. The index seems to be facing a major hurdle at 10550 as this level coincides with a 61.8% Fibonacci retracement of the fall from top to the recent bottom. Though the trend is up now, we expect the upside going ahead to remain limited and test the lower end of the channel drawn from the bottom, which comes at 9700 level.

Expectations for the Week

Statistical evidence suggest that sometimes monthly expiries have registered intermediate tops and bottoms. July expiry is expected to begin with lower short interests and therefore the velocity of the up-move rally that was witnessed in the month of May and June may not occur again in July. Infact, July can give a negative surprise and can fall decently, if no fresh delivery-based buying emerges. Markets are still going to be significantly influenced by updates on India-Sino standoff and US-Sino trade talks. While these influences might only be sentimental but if FPIs start selling, markets can really fall from the cliff as they have already bounced back 38% which statistically is a good number for markets to start drifting lower. All the positives, if any, are discounted, however any negative surprises may take markets lower. Investors are advised to be cautious, conserve cash and wait on the sidelines. Nifty50 closed the week at 10,383.00, up by 1.35%.


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