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Published on 6/04/2020 3:48:12 PM | Source: Samco Securities Ltd

Views On the Weekly Market Performance by Mr. Jimeet Modi, Founder & CEO, SAMCO Securities

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

Short Bounceback Awaited in April

Markets continued to succumb to the bears this week post a short bounce back the week earlier. Such dead cat bounces shouldn’t be mistaken as beginning of bull market rallies; yet there are indications that markets are expected to witness another short-term bounce in the coming weeks. Firstly, the selling pressure has continued although to a lesser extent which shows that FPIs have reduced their quantum of selling. India VIX which is the fear barometer is also showing signs of fear ebbing resulting into receding volatility. It had touched levels of 83 towards the end of March and since then has been declining to sub 60 levels. Open interest is also down by 50%-60% in Nifty and stock futures which is a good sign that the market is light in terms of leverage.  Moreover, commodities too haven’t witnessed panic selling recently and have sort of stabilized. All these point to the markets having priced in most of the negatives as of now. US equities too are showing a reduced correlation between the stock price decline and the heightening of Covid-19 positive cases. This indicates that sanity is slowly prevailing and markets have assumed that it will take a while before the covid19 cases peak driving markets into a wait and watch mode. 

On the other hand, the much talked about crude is witnessing sudden spikes amidst the oversupply and production cut talks between the US, Russia and Saudis. The price war between the two oil producers is indeed going to decide the fate of crude as the lockdown has impacted demand tremendously with barrels of crude piling up having no space for storage. Decline in crude oil has led to first wicket down in US, Whiting Petroleum Corp has filed for bankruptcy proceedings. If there is no conclusion between the waring nations, price of crude can induce system wide risks in the economies worldwide. 

Event of the Week

March auto numbers have plummeted given the lockdown impact; two-wheelers saw a decline of about 45-55%, passenger vehicles fell 50-60% and commercial vehicles were down by 80-90% on a YoY basis. It is expected that the sales numbers for the month of April 2020 may be even worse, courtesy lockdown. However, the recent correction in the sector seems to have already factored in the slowdown in performance. Hope for a scrappage policy that may be around the corner when the government announces an economic package in the near term will immensely aid this sector. The auto sector is not for the faint hearted, those with risk appetite should only consider. 


Technical Outlook

Nifty index, after opening negative, traded in a comparatively narrow range of 8130 to 8680 and continued to consolidate. Indian markets, in line with global indices, is trying to stabilize for now in spite of the escalating health risks worldwide.  The recent sell-off caused significant price damage in a very short period of time and hence the market is likely to oscillate in a broad range of 1000 points. Markets are likely to witness a period of time correction going ahead with a mild positive to sideways movement for a week or two. We suggest traders to go long if Nifty50 sustains above 8000 levels keeping that level as stop loss for long positions.
 

 

Expectation for the Week

It can reasonably be expected that the Government will announce a second round of economic relief package before the lock down is lifted by mid-April.  However, in anticipation of such package markets are likely to witness bounces. Pharmaceuticals look resilient and seems to be little affected by the lock down, traders can take long positions in this sector. Financials may rebound after the relief package is announced so one can wait and watch for the time being. As an asset allocation strategy going for quality corporate bonds with yields of around 12% or higher would be a good option in these stressful times. Investors are advised to continue their SIPs which would help them take advantage of the irrationally beaten down prices. Stay home and Stay safe! Nifty50 closed the week at 8083.80, down by 6.7%. 

 

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