Market Overview- 8 January 2021
Technical Outlook
Nifty50 index closed the week on a positive note as the market remained unaffected in the short term and continues to surge higher. This week almost all sectoral indices closed in green except FMCG while metals, IT and media continued to lead. Nifty now seems to be heading towards 14500 as it is lacking any significant negative events. On the downside 13950 has been established as an immediate support and a break of the same may trigger a profit-booking move in the short term. The market continues to remain overbought in the short-term and we maintain a cautiously bullish outlook unless the market breaks below 13950.
Week Gone By
During the week, Mr. Market continued its march towards lifetime highs with consistent support from small and midcap constituents. It would be reasonable to conclude that this exuberance is likely to continue till the Budget-day. Just as equities are the talk of the town there is one other asset class that has zoomed above USD 40,000 for the first time this week. The rally in Bitcoin has been making all market participants FOMO but this surreal jump in cryptocurrencies does signal that our world is heading towards a major inflationary price increase across real (tangible) assets. It is probable that down the line as inflation rises people’s liquid assets will start eroding in value and there will be a decline in purchasing power, and hence there is a need for alternative real assets such as Bitcoin.
The phenomena of inflationary tendencies to kick in and lead to erosion in purchasing power could last for at least 3-5 years. And in this period, one can look to generate disproportionate returns by investing in companies whose focus is on metals and mining, industrial, cement and real estate. The current consensus continues to bet on FMCG, Pharma and IT performing well in the future but it may not hold good if such inflationary tendencies gain traction. If the movement in Bitcoin is any precursor for equity markets then one may see a massive rally in metals, mining and real estate stocks. With an uncertain event such as the pandemic disrupting many businesses, some traditional principles of investing are now certainly demanding a relook.
Long years of underperformance in cyclical, industrial, and capital intensive industries may come out as winners for the next few years. Investors are therefore advised to bet on these themes in the equity market.
Event of the Week
BankNifty is trading close to its lifetime highs and it was buzzing this week on Q3 business updates announced by several private sector lenders. With the opening of major cities and our economy on its path to recovery, banks are also making headways to regain operations just like the pre-Covid days. And HDFC Bank reported a deposit growth of 19.10% but the weakest advance growth of 15.60% YoY in 16 quarters. Given the moderation in loan growth in this bellwether banking player, it would be safe to say that this sector is yet to reach its peak in terms of business growth, which is a positive sign for investors as any dip could pose as good opportunities to enter these financials.
Expectations for the Week
Going ahead Indian bourses will be bombarded with quarterly earnings from India Inc., starting with major IT players. Whilst a good show is expected from a majority of sectors, market participants should be wary as stock prices have run up to a great extent and most of the positives have already been discounted in the price. A decent strategy for traders would be to wait and watch for the market’s reaction on the results and then see the momentum to judge the trade. Investors are suggested to stay put and look for opportunities to increase weightage in quality players from the metals and mining, industrials, cement and real estate sectors. Nifty50 closed the week at 14347.3, up by 2.3%.ReplyForward