Indian Stock Market Outlook by SAMCO Research

Indian Stock Market Outlook by SAMCO Research

Indian markets started the currently week on a positive note and stocks are again trading near their recent highs. Markets are lacking any major triggers and quarterly results will start coming this week. Markets could get highly stock-specific as companies with better quarterly performance will be rewarded. Outlook for Indian stock markets by SAMCO research follows....

Indian bourses during the short week witnessed a surge in broad based buying after a 4% decline a week ago. This behaviour by local indices is mirroring the upbeat global sentiment especially in the US on hopes of a new fiscal stimulus. Back home too, investors are hoping for some stimulus to aid the weaker sectors who have been gravely impacted by the lockdowns. A part by part opening of the economy so that capacities and production move back to pre-Covid levels is the Centre's plan and this itself is keeping the Street in a good mood.

Various indicators are also singing the same tune. VIX, which happens to be the fear barometer of markets, continued its downward journey the entire month of September which rightly justifies the positive sentiment, since volatility and equities are negatively correlated to each other. Moreover, India witnessed a record high current account surplus - a rarity for the nation - in the April-June quarter. This is the second consecutive quarter India has seen a surplus which is the highest on record. All these factors point to the growing hopes of market participants that India will emerge as a stronger country post the pandemic. However, investors shouldn't be aggressive and get along the buying wagon since US elections would be a key event to watch out for which can swing the tide in any direction.

Event of the week

Investors might think it's raining good news with bumper IPO listings and encouraging monthly auto sales numbers. For instance, India's largest four-wheeler passenger vehicle manufacturer, Maruti Suzuki registered total sales of 160,442 units, a growth of 30.8% over the same period previous year; this kind of growth was long forgotten by auto players. On a similar front, Bajaj Auto clocked 10% YoY growth in sales. These growth figures might seem positive but some of them can be attributed to pent up demand and the various discounts offered by dealers to get rid of the piling inventory. Companies had slowed down production too to prevent inventory drain. Therefore, investors should still continue to be cautious while picking up auto stocks atleast until there is some update on the scrappage policy, relief in terms of GST, renewed lending by financial institutions and the newly expected stimulus is able to address auto woes.

Technical Outlook

Nifty 50 closed on a positive note after a big bearish candle last week as the index found support at 25% retracement of the entire rally since March. The bounce from these levels hint at further room for an upside in this rally. Market's move this week can be attributed to aggressive longs in the metal, auto and banking sectors. BankNifty, which remained on the sidelines or underperformed till now, is now taking the lead and indicating a fresh upmove. After a sizable fall last week in the benchmark index, we maintain a bullish outlook on the index as long as it does not fall below the 25% retracement support. The immediate support and resistance are now placed at 11,180 and 11,540 respectively. Traders should wait for a decline before building long positions.

Expectation for the week

Postponement of important events such as RBI's MPC meet, Supreme court's outcome on waiver of interest on interests is expected to keep the upcoming week eventful for Nifty and BankNifty alike. Any signs of a relief package along with Q2 numbers by India Inc will also keep bourses buzzing. All in all October could keep markets in a range before the Bihar elections and US elections determine a decisive course for the indices. Stock specific movement will be witnessed and investors can adopt a buy on dips strategy in quality stocks. Nifty50 closed the week at 11,417.0, up by 3.3%.

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