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Published on 31/07/2020 5:34:16 PM | Source: Samco Securities Ltd

Week Ahead to be Weak Ahead - Article by Jimeet Modi, Samco Group

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Below is the Views On Week Ahead to be Weak Ahead - Article by Mr. Jimeet Modi, Founder & CEO Samco Group

Week Ahead to be Weak Ahead

During the week, Mr. Market lost its upward momentum and it looks like distribution has set in motion. Markets are at extremely overbought levels and the optimism too seems to be at elevated levels. Rollover data in frontline stocks suggest that complacency has crept in and majority of long positions have been carried forward to the next month.  Such kind of extremely high optimism may lead to short term corrections. Rossari Biotech is a case in point wherein market participants gave a euphoric listing gain but within a week the fire power exhausted and this throws light on what lies ahead for the general market. Life Insurance Corporation of India (LIC), whose public offer is expected to be the largest ever in the history of the domestic capital markets, is now a reality which may take away the precious liquidity from the market by Diwali 2020. A lot of other IPOs too are lined up in next 2-3 months which historically signals capping of upside potential for the broader markets. 

The FMCG basket reported bleak quarterly numbers but this surprised D-Street as expectation was that demand for essentials during the lockdown should have not have been impacted but it did, therefore post numbers heavy weights like HUL and Nestle corrected. Market participants have always believed the FMCG sector to be a defensive play unaffected by any economic slowdown but that’s not always the case. Where the participants expected a washout quarter, stock prices initially saw a bit of selling pressure but later bounced back higher for eg. Indigo sharply moved higher after massive losses.  Hence traders are advised to corroborate their views with the Market’s consensus sentiment before jumping the gun. 

Event of the Week

POTUS Trump issued four orders restricting the pricing power of generic pharmaceutical companies. Initially, these orders did not go down well with the stock prices seeing a bit of correction. But very soon, the entire Pharma space bounced back and it now seems to be ready for a rally after a short consolidation of 2-3 months. It can be well construed that when bad news cannot take stock prices lower, nothing else can! Therefore, Pharma space looks resilient and has higher chance of inching upwards in the short to medium term. Q1FY21 earnings performance too is rosy for majority of them. 

Technical Outlook

Nifty50 posted a red weekly candle after rallying for six weeks consecutively. The index is overbought in the short term and may witness a profit-booking move led by weakness in heavyweights like RIL and HDFC Bank. The trend for the Bank Nifty index is already weak and consolidating in a range since the last four weeks. Selling pressure in Nifty50 at higher levels and weakness in Bank Nifty is likely to drag the benchmark indices lower. We maintain a bearish outlook going ahead and believe a retest of 10600 is a possibility within a couple of weeks. 

Expectations for the Week

It is RBI’s turn to console and mend the Indian economy, post US Federal Reserve’s status quo on interest rates and a repeat in pledge to use its ‘full range of tools’ to support the US economy. It is now in the hands of RBI to further lubricate the economy either by a decent rate cut or policy initiatives. Their stance on moratorium or onetime restructuring (COVID-19) will set the tone for the entire financial sectors for weeks ahead. In general, Bank Nifty has underperformed and pessimism continues to run high. Therefore, any move by RBI will create short term volatility in the banking stocks. Yes Bank’s capital raising was not lauded by the market as expected and hence it can be concluded that capital hungry sectors will remain under pressure going ahead. Investors are advised to remain cautious and partly book profits. They should wait for a sharp correction before making any fresh bets. Gold is likely to continue its march to higher levels and risk-taking investors can look to allocate fresh monies at current levels for their long-term portfolio. Nifty50 closed the week at 11,073.5, down by 1.1%.   

 

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