The domestic equity market showed exuberance during the week gone by with wide gap-up moves mirroring US markets. The bounce came in as a surprise to many, as the US election verdict went into litigation after ‘supposed’ winning candidate Joe Biden appeared to be finishing with a very narrow majority.
Also, the lack of complete majority in the Senate is expected to slow down the decision-making process. If this were to happen in India, markets would have drowned in negative sentiments. It is nothing but sheer strength of liquidity and hope of fresh stimulus, which are keeping the bourses upbeat.
Irrespective of who wins the election, the stimulus expectation has become the main trigger for the celebratory mood in equity and commodities markets across the globe. 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, and from labor-intensive construction activities to GST collections, all indicators touched their pre-Covid levels.
However, certain sectors are still reeling under the pressure of an economic contraction, though stock markets are on their path to recovery with sharp gains during the 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 the 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 it has seen within a 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 era, given the comparatively superior structural orientation of the economy.
Event of the Week
Mark Twain had rightly said: “History doesn’t repeat itself, but it often rhymes.†This time, US election outcome is certainly rhyming with history and that has surprised many! In 2016, when President Donald Trump was inching towards victory, markets tanked given his anti-globalisation rhetoric. But post that knee-jerk reaction, the market recovered handsomely and surprised everyone.
This time around too, there were speculations prior to the elections that Trump’s comeback would drive markets higher and Biden’s win would hurt capitalism given his socialist stance, which was perceived to be negative from a stock market point of view.
But much to everyone’s surprise, Biden’s crawling victory coincided with a surge in stock markets. Current theatrics succinctly portray that presidents may come and go, but markets will continue their underlying trend.
Technical Outlook
Nifty 50 formed a big bullish candle on the weekly chart and remained strong throughout the week. Almost all major sectors contributed positively, while Bank Nifty and Nifty Metal indices remained top leaders. Recently, Nifty saw a decisive breakout of the strong resistance zone at 12,000 level and is now trading near its nine-month high. 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 during the week gone by.
Thus, we take a cautiously bullish view on the market and suggest traders to buy on dips or buy around the short-term supports, which is placed at 12,020. The short-term resistance is at 12,350.
Expectations for the Week
With the current excitement in the frontline indices, the broader market – especially smallcaps – remained reluctant to join the rally. These very stocks are likely to partake in the runup to Diwali. The long wait for another round of stimulus from the Indian government around Diwali seems far-fetched and all hopes seem to be dying as Bihar elections conclude.
This may not bode well for the domestic market and may bring in disappointment once the euphoria around US election subsides. However, given the massive liquidity flushing the global ecosystem, it would be worthwhile to accumulate metal stocks, asset-light real estate players, resilient private sector banks and well-capitalised smaller NBFCs, which have a lot of steam left in them for a decent upside.
Nifty50 ended the week 5.3 per cent lower at 12,263.
