Ride the tide with caution. Bull run is likely to slow down now

During the week gone by, Mr Market appeared to be on steroids with Nifty50 topping the 13,000 mark for the first time ever, mounting on upbeat sentiment. This behaviour of the domestic market was in congruence with Wall Street, which busted its latest milestone when the Dow Jones Industrial Average topped the 30,000 mark for the first time this past week.Market participants across the globe were heartened by the progress towards developing coronavirus vaccines and news that the transition of power to US President-elect Joe Biden is finally beginning.Back home, FPI inflows of $6.7 billion month to date made India their third most preferred investment destination in Asia after Japan and Korea, which reportedly was the biggest monthly inflow ever.By scrutinising monthly FPI flow data for the year, we can see that FPIs had sold equities furiously to the tune of Rs 65,817 crore in March, which turned out to be at the extreme market bottom. In November, FPIs pumped in over Rs 57,500 crore in equities near its all-time high. Market participants should rejoice the massive foreign buying, but it is time to be cautious too, as the liquidity and optimism-led rally is driven majorly by market sentiment, where the fundamentals are being completely disregarded in the mad rush to chase momentum. If one were to consider the market in its entirety (FPI + DII), it is inching higher on account of liquidity. However, the momentum is likely to continue only till something unpleasant shakes up the world economy and triggers a correction.Event of the WeekThe much-awaited MSCI Global Standard Index rejig with varied additions and deletions is going to take effect from November 30 and this month’s abundant inflows can be attributed majorly to the recast and a possible increase in India’s weightage in the global index, which many international fund houses would have had to take into account. DIIs, on the other hand, are undertaking selling and could still continue with the same, but FPIs might not aggressively buy going forward since the MSCI index rejig event is already over.Hence, by netting the two we can conclude that DIIs might act as a party pooper, and put pressure on the bulls, and that could trigger a correction in the weeks to come. Institutional activity will offer an important clue going forward.Technical OutlookNifty 50 closed the week with a mild gain, forming a Spinning Top candle at the rising channel resistance, which signals that the bulls are getting tired and may take a pause to consolidate the gains. Though most of sectoral indices closed positive, Nifty metal and pharma indices remained top leaders. Nifty Bank which has been a major driver of the recent bull run, has slowed down the momentum and taken a back seat while pharma and IT indices seem to be taking charge. The outlook for the short term remains bullish, but as the benchmark indices turn overbought, traders take a defensive stance and lighten their aggressive bets.Immediate support and resistance levels are now placed at 12,750 and 13,150 levels, a break below this support may make Nifty to retest the 12,400 mark and break above 13,150, which might open targets up to 13,400.79459195Expectations for the WeekAll eyes could be on RBI’s MPC meeting scheduled for next week, waiting for comments on the likely inflation trend and any upward revision of growth forecasts. With the economy recovering slowly and facing inflationary pressures, it is likely that RBI would maintain an accommodative stance.Markets are unlikely to react majorly on either direction as there is very little room for rate reductions. Going ahead, it is expected that Mr Market might go into a holiday mood with no major directional moves.Stock-specific sectoral rotations are also likely to unfold in the near term. Investors are advised to go long on sectors like IT, pharma as well as on well-capitalised private sector banks and NBFCs, which might see some traction.Nifty50 closed the week at 12,968, up 0.9%.

from Economic Times https://ift.tt/2Jld8jA