Indian Stock Market Weekly Outlook by SAMCO Securities
Indian markets witnessed a mixed week with gains after Indian government announced stimulus package but declined as global markets turned negative. SAMCO research team has suggested a bleak outlook for the upcoming week with control seemingly in the hands of bears. Global markets showed optimism as many regions lifted lockdowns and economic activity started crawling back to pre-COVID levels. However, we might face a long road to recovery and it isn't easy to guess when the economy will be able to recover from the quick loss caused by COVID-19 pandemic.
During the week, markets traded in a narrow range but with wide overnight gaps making people wary of keeping open positions. Open Interest in Nifty Futures was the lowest in last 15 years. Weak hearted traders are virtually out of D-Street as markets are heading towards an unchartered highway. On one hand casualties are increasing day by day but on the other, financial markets are being boosted with liquidity every minute, whether it be the US Fed or now the Indian Government which announced stimulus in the form of credit expansion to various stressed parts of the economy. Hon'ble Prime Minister synthesized the mega economic relief package of nearly Rs. 20 lakh Crs. This move was to inject liquidity and keep afloat livelihood through targeted loans to MSMEs, farmers, migrant workers etc. Nonetheless, the crux of the issue such as solvency, viability, visibility of businesses which are temporarily or permanently impaired have not been addressed yet. The fiscal response was poor but monetary response was aggressive which may lead to heightened delinquencies in the financial sector due to ever increasing debt levels and or cause inflationary pressure. The stimulus is expected to bring in short to medium term stability but longer-term viability is still unclear.
Event of the week
Federal Reserve Chair Jerome Powell in his recent comments on where the US economy stands in terms of its reopening warned of an extended period of weak growth and stagnating incomes, pledging to use more of the central bank's power as and when needed, and issued a call for additional fiscal spending. This succinctly points towards the conclusion that various principal stakeholders assume further contraction in economy across the globe. Pain isn't over yet!
On the higher side, Nifty50 could not cross 9900 and reversed from the 50% Fibonacci resistance of the recent down move. The rally seems to be coming to an end since Nifty50 formed a three inside down candlestick pattern and closed lower. While broader market's breadth remained weak for the last two weeks, large-caps too started witnessing weakness and hinted towards another round of selling as even the mega stimulus package by the Government was not able to support the markets. We expect the market to likely move in tandem with global indices as the problem is not country-specific and maintain a bearish view. The resistance on the upside is 9600 and the break of 8900 will resume the down trend.