Indian Stock Market Outlook by SAMCO Research

Indian Stock Market Outlook by SAMCO Research

Indian markets have turned positive for the year with strong gains registered this week. Global markets have been upbeat while the counting of votes after the US election is still pending. Democrat Joe Biden has high chances to winning the election for the US President. Indian markets have been gaining ground as many companies announced strong quarterly performance while others have showcased recovery. Market outlook by SAMCO research follows.....

Markets during the week showed exuberance with wide gap-up moves mirroring US markets. The up move came in as a surprise to many given that litigation is around the corner with the "supposed" winning candidate Mr. Biden having a very narrow majority in comparison to his competitor. Also, the lack of complete majority in the Senate could lead to a slow decision-making process. If this were to happen in India, markets would have drowned in negative sentiments. Currently, it is nothing but sheer liquidity and hopes of additional liquidity in the form of stimulus which is keeping the bourses upbeat. Irrespective of who wins the elections, the stimulus expectation is the main trigger for a celebratory mood in equities and commodities across the globe. And in order to globally sustain this celebration, path-breaking structural reforms will have to be implemented in the near term.

In India, major ground-level economic indicators right from diesel consumption to PMI, from labor-intensive construction activities to GST collections all indicate having touched their pre-Covid levels. However, certain sectors are still reeling under the pressure of economic contraction but stock markets are on their way to recovery with sharp gains this week. Liquor manufacturing stocks, leisure industry participants and other discretionary providers are pinning their hopes on a strong recovery latest by January 2021. The velocity of domestic recovery has surprised even the renowned international financial institutions like the World Bank and the IMF. Going forward, Mr. Market is expected to take a breather for a while given the tremendous run-up in the short term, however, the long-term bull market seems to be intact and India is expected to be a key beneficiary in the post-COVID-19 era, given the comparatively superior structural orientation of our economy.

Technical Outlook

Nifty 50 posted a big bullish weekly candle and remained strong throughout the week. Almost all major sectors contributed positively while the BankNifty and Nifty Metal remained the top leaders. Recently, Nifty index gave a decisive breakout out of its strong resistance zone of 12,000 and is now trading near its 9-month highs. Even though our market is recovering to old highs and making strides, global indices like S&P500, DAX, and CAC40 have been making lower peaks despite good gains in the week gone by. Thus, we take a cautiously bullish view on the market and suggest traders to buy on dips or buy around short term supports. Short term support and resistances are now placed at 12,020 and 12,350.

Expectation for the week

With current excitement seen in the front-line indices, broader markets especially small caps remained reluctant to join the rally. These very stocks are likely to partake in the run up to Diwali. The long wait for another round of stimulus around Diwali from the Indian Government seems far-fetched and all hopes seem to be dying given that Bihar elections have also concluded. This may not bode well for the domestic market and would bring in disappointment once the euphoria around US election subsides. However, given the massive liquidity being flushed in the global ecosystem, it would be worthwhile to accumulate metal stocks, asset-light real estate players, resilient private sector banks and well-capitalized smaller NBFCs which have steam left for a decent potential on the upside. Nifty50 closed the week at 12,263.5, up by 5.3%.

Analyst Views: