Indian Stock Market Review and Outlook by Nirali Shah, SAMCO Research

Indian Stock Market Review and Outlook by Nirali Shah, SAMCO Research

Indian markets witnessed decline on Friday after many trading sessions marking positive closing for the markets. Market review and outlook for next week by SAMCO research follows....

Markets during the week slowed down its velocity as more or less all positive clues have been discounted. Despite the new US President-elect announcing a fresh round of stimulus of $1.9Tn, US markets were unamused. The massive liquidity in the system is the only reason driving markets higher, but at the same time, the liquidity being sucked out through IPOs is very small in comparison to the proportion of helicopter money. The Government is all set to aggressively offload their shareholdings through primary and secondary markets where they possess holdings beyond 51%. SAIL's OFS was a real surprise post its surreal 3x returns in 9 months and the exchequer jumped on this opportunity to trim its stake given the rising demand. Markets should be well prepared as other listed Government companies might follow the same footsteps. Hence going forward, PSUs might witness selling pressure as and when the supply deepens which will keep a tight rein on the prices. IPOs of LIC and other big ticket players are yet to see the glory of D-Street, however, it seems absolutely clear that the Government is willing to sell on every rise.

More on IPOs, a plethora of companies are expected to enter Indian bourses in the first quarter of this year commencing with IRFC and Indigo Paints. This may further create a euphoria for more IPOs to come in the market which will eventually stop the music of liquidity. However, it would be pertinent to understand that the rate at which developed economies are pursuing quantitative easing is quite substantial when compared to the rate at which IPOs are hitting markets. Therefore, it can be said that the liquidity will be in our system for some more time but nonetheless, the beginning is well underway wherein the financial markets' liquidity is being channelized in the real economy by IPOs and FPOs. Investors are advised to subscribe to these IPOs in the current environment of liquidity gush and encash profits as and when the opportunity strikes. A trader mentality would work better rather than holding on to these stocks for the long term.

Event of the week

The four IT biggies delivered blockbuster earnings for the third quarter despite the furloughs usually seen in Q3. Infosys outperformed both TCS and Wipro on the revenue growth front. Sequential revenue growth in constant currency terms for Infosys grew at 6.6% vs. TCS' 4.1%, Wipro's 3.4% and HCL Tech's 3.6%. Though stock prices of the IT pack appear expensive currently but with TCS and Infosys gaining market share and management's upbeat commentary of a multi-year technology upgrade cycle plan going ahead, earnings momentum might support the stock price for a reasonable period of time. Investors may look to remain invested in the IT sector for the long haul.

Technical Outlook

Nifty50 closed the week on a positive note after making a new lifetime high, however, the index witnessed a narrow trading range and formed a bearish Shooting Star candlestick pattern on the weekly chart. The market is overstretched on the upside, so this can cause a short-term dip or weakness in the near term. Infact, S&P 500 index which has been dictating the trend in global equity indices is now trading negative for the week and other emerging markets such as Taiwan (TAIEX) and South Korea (KOSPI) are also trading with a sideways to mild negative bias. A break below 14,430 can trigger a profit-booking move in Nifty. Immediate support and resistance in the short term are now placed at 14,430 and 14,640 respectively and a break on either side will lead to a directional move in the short term.

Expectations for the week

Going ahead, markets are expected to witness unusual hype and hysteria on hopes and expectations of Union Budget which will drive the volatility even higher. At an aggregate level, large cap players might not register substantial moves but there could be a lot of buzz in small and midcaps. Market participants should consider this as a trading opportunity and not for investment for the long term at current price points. Medium term investment opportunities are still available in pockets like metals, commodities and cyclicals, although they have turned risky. Nifty50 closed the week at 14,433.7, up by 0.6%.