Indian Stock Market Outlook for Next Week by SAMCO Securities
Indian markets have registered amazing pullback rally in the recent trading sessions but majority of investors and market analysts are questioning the fundamentals of this rally. Global markets have also witnessed strength as many regions across the world have allowed some of the economic activities while keeping strict measures. Global markets have been rising but market experts are expecting clarity on coronavirus pandemic before they can believe in this pullback rally. A review of Indian markets and outlook for next week by SAMCO Securities follows...
Indian markets during the week rallied on the back of built up hopes for a possible fiscal stimulus from the Indian government. Global markets too rallied as many countries including emerging markets like Thailand, Malaysia have announced stimulus packages in the range of 10-15% of their GDP whereas developed countries like USA have provided stimulus to the economy of a similar magnitude; while India still awaits a second fiscal package. The upward move in Indian bourses is a globally orchestrated rally and if the Indian government does not live up to the expectation of huge stimulus, markets will be disappointed which will lead to lower price levels.
The current fall and a subsequent bounce back is largely due to market assimilating the health aspect of coronavirus, nonetheless the financial implication is yet to be assessed, discounted not only in India but across the globe. A crisis similar to global financial crisis of 2008-09 catalyzed by subprime mortgages may unfold post lockdown, but on the positive side, central banks across the world, in order to boost liquidity have already reduced their interest rates to near zero levels and are preparing themselves to buy bonds worth trillions of dollars from the market to avoid 2008-09 type crises. This hope is pushing markets higher.
On the domestic front, Indian markets witnessed a bag full of optimism in the pharmaceutical sector which was one of the most neglected since half a decade. The Pharma index is up 50% this month, however, the optimism seems to be cooling off and prices are unwilling to continue their upward journey. Insipite of prices opening with a gap up, the rally is being sold out on the same day or the next day. Prices of companies like Strides Pharma, Lupin and Glenmark Pharma rallied momentarily on positives of plant/product clearances but the momentum did not last long. Hence, traders can go short on this sector and investors may avoid and wait for correction.
Event of the week
The central banking system of the US, The Federal Reserve, left its benchmark interest rate unchanged at a range of 0% to 0.25% and commented that it will use its tools and act as appropriate to support the economy. Further, remarks of Chair of the Federal Reserve Jeremy Powell highlighted that Fed would be patient and would not be in any hurry to move rates up, which cheered the US market. This careful status quo decision of Fed shows the commitment that they will support financial markets with their unlimited money power which is boosting global equity sentiments.
Nifty50 opened with a gap up on the last session with broader market participation forming a big bullish candle for the week. The index has rallied almost 30 percent from the lows, however the rally had been corrective in nature and not an impulse up wave. Going with the trend we maintain cautious outlook going ahead as the index is approaching towards cluster of 50% Fibonacci retracement and gap resistance around 9900-9950. Longs can be liquidated on weakness and fresh shorts can be initiated below 9500.
Expectation for the week
In the coming week, markets are expected to take major clues from any updates on lifting of lockdown which would assist the participants to gauge the ground level reality and set the course of direction. Markets are also expected to keep an eye on long awaited stimulus package as well as mutual fund investor's behavior on the inflows and outflows from D-Street. Volatility will remain higher in the coming week and a lot of volatility is expected in small and midcap stocks, although they will face selling pressure at higher levels. Investors should be in wait and watch mode and preserve cash by not aggressively investing at the current levels. As it is said that in bull market equity is king and in uncertain times cash is king. Investors can selectively book profits too in order to raise liquidity. Nifty50 closed the week at 9859.90, up by 7.7%.