Markets finally aligning with reality, time to ready your shopping list


Markets witnessed massive selling during the week gone by amid concerns over steep valuations and a tech bubble burst in the US, but by the end of the week, there was a partial rebound. It can be said that the indices across the world are now mean-reverting, and correcting on fears of a second wave of Covid-19, weak signs of demand revival and high unemployment.

The bourses are now aligning to ground-level realities and reacting sharply on any negative global cues. The banking sector, seen as a bridge between real and financial economy, had anyway underperformed during the March-September rally, and is now finally experiencing selling pressure.

All the QIPs in the financial space such as those of ICICI Bank and Axis Bank were done at much higher prices and FPIs are now sitting at paper losses. Nonetheless, a healthy downturn in this sector now, especially in stocks of private lenders, will offer a good chance to investors to accumulate quality names in their portfolios. Prices of banking stocks can come back to the March-April lows, which will be good entry opportunity for investors.

Whenever optimism prevails, there are a slew of IPOs and this time too it has been no different. Novelty excites every human being, which then leads to the euphoria, as seen in the recent IPO subscription levels and listing gains, which has drawn even more people to try and make a quick buck. Two consecutive IPOs witnessed a frenzied listings with over 100% gains this past fortnight.

Traditionally, such magnitude of listing premiums and a boatload pipeline of IPOs have been sturdy indicators of market euphoria. As long as the IPO pipeline doesn’t dry up, Mr Market is likely to inch lower in anticipation of liquidity getting sucked out. Investors should be cautious before subscribing to IPOs and should look for listing gains only, rather than looking for long-term investment in these given the volatile market conditions.

Event of the Week

Nasdaq witnessed massive selling, akin to a bubble burst in the tech space, which reminded one of a similar crash witnessed 20 years ago, wherein Nasdaq lost steam amid rising optimism and euphoria. FAANG and the likes, which had been enjoying a concentrated rally, suddenly witnessed heavy selling pressure. This cascaded to Indian markets and Nifty cracked, giving up 4 per cent. Going forward, the tide could turn against tech companies in the US. However, Indian IT players should not be seen through the same lens, given the innate differences in business models and cash flow predictability. In fact, India’s IT companies seem relatively safer, since they aren’t in the bubble category yet in terms of valuations like their US counterparts.

Technical Outlook

Nifty50 fell sharply and made a big bearish candle after remaining overbought for an extended period. The weakness was broadbased amid negative sentiments in global markets. The index is now trading at rising channel support, which coincides the with short-term averages of 20 EMA on a weekly time frame. Traders should remain watchful whether the price holds at these levels for the next upmove.

A decisive break below the 10,800 level will lead to opening of lower targets up to the 10,500-10,400 zone. The immediate outlook for a majority of sectors is bearish, thus we suggest traders to maintain a bearish bias unless there is any bullish evidence at channel support. The immediate support and resistance levels are now stands at 10,850 and 11,200 levels.

ET CONTRIBUTORS

Expectation for the Week

As the start of the October F&O series, market participants are expected to keep a keen eye on the forthcoming MPC meeting of RBI and the apex court’s decision on interest on interest waiver. A temporary pause on any further rate cuts given the rising retail inflation seems to be the popular word on the Street.

Additionally, the financial service sector should be tracked closely, as any conclusive decision by the Supreme Court, would remove the overhang from the sector and nominal clarity may emerge. Any additional economic stimulus package from the government would increase overall optimism in the market.

Investors are advised to stay abreast of these developments and keep their shopping lists of quality stocks ready for cherry-picking. Buying should start slowly on declines.

Nifty50 closed the week at 11,050 level, down 4 per cent.

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