The domestic equity market steadily gained strength during the week gone by keeping aside electoral fears. A big boost came after the Fed Chairman Jerome Powells recent speech, in which he hinted that tightening of interest rates might not happen soon. The indication that US interest rates are just below neutral levels implies that there is no urgency to hike rates.
This led to across-the-board buying in global equities with a corresponding fall in the prices of precious metals and commodities. There are expectations of aggressive buying by FIIs in India and other emerging markets after the recent market correction of 10-15 per cent, which has made stocks cheaper at current valuations.
However, this is a sudden euphoric reaction by the market participants and only the actual meeting will reveal the true picture. Stocks and sectors that had witnessed abnormal selling pressure either due to negative sentiments or due to weak quarterly numbers are expected to offer good value proposition from a medium-term perspective.
Event of the Week
There was a lot of fear this week, majorly in one stock, Yes Bank, but on deeper analysis, there were apparently no transactions that will inflict losses on the bank. Transactions and other events transpired between YES Bank promoters and other institutions in their individual capacity, which in no way should impact YES Bank. Also, the ratings downgrade by 2 notches of YES Banks bonds might have caused mark-to-market losses on mutual fund debt portfolios, but this will not affect YES Banks current profitability.
We believe the market has overreacted on this stock and there is no cause for panic, unless some frauds are revealed in the bank itself.
Nifty50 is facing resistance at 50 per cent retracement levels. It formed a Doji pattern on daily charts after a strong move indicating the first weakness in the market. Indicators have turned overbought and divergence is spotted, indicating loss of momentum in the upward move. The hurdle at 10,950 is very strong to penetrate. Traders are advised to book profits on long positions and wait for weakness to short the market.
Expectations for the Week
Given the expectations of a dovish stance by the central bank at the December Fed meet, RBI too is unlikely to increase cost of funds by raising interest rates. On the contrary, the pick-up in bank credit growth has more than doubled to 15.6 per cent in the first week of November, which is a sign that economic actions and capex of corporates are picking up.
This is positive for the sustainable economic growth of around 7 per cent and upwards. Even though a few stocks such as Bajaj Auto, Cipla, Bosch and MGL are expected to be good picks at the current levels and offer a good margin of safety for the investors from a long-term horizon. However, broadly the markets are highly volatile and can show weakness at any instance of negativity.
Hence, it is best to remain cautious and take measures. Aggressive bets should be avoided in this uncertain environment.
The Nifty50 ended the week 3.32 per cent higher at 10,876.