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Nifty50, Nifty, Q2 earnings, market ahead, inflation

The Indian equity market has created history by hitting milestone after milestone! It started with Nifty crossing the 16,000 mark on August 3, sprinting to 17 000 on August 31 and surpassing 18,000 on October 11 – with the journey of adding the last 1,000 points being the second fastest since inception. When we look back, March 2020’s substantial fall seems small against the mammoth rally that our markets have delivered.

This bounce isn’t purely driven by only a certain class of investors. While FIIs set forth their conviction in Indian capital markets in September, by infusing the highest amount of funds of 2021, retail investors weren’t behind. September also witnessed the highest mutual fund SIP inflows, which crossed the Rs 10,000 Cr mark for the first time.

This unionised confidence in India coupled with the timely softening of the CPI inflation in line with RBI’s forecasts steered the swift rally in benchmark indices. It was further incentivized by an uptick in certain high frequency economic indicators like power consumption, railway freight, e-way bills to name a few. While some may call this rally a liquidity driven one, some may call it a greed cycle, the fact remains that investors have made stupendous returns across stocks irrespective of their fundamentals.

Although it may seem that all cards have fallen in place to bolster this optimism and keep the Indian equities upbeat, investors need to be mindful of the global market behaviour. In the past month alone, while the Nifty50 surged over 5 per cent, the S&P 500 has dipped over 2 per cent. The divergence of the Indian equity market is not limited to the S&P 500, but also with the other global indices like the Hang Seng, KOSPI, Nikkei 225 which have dipped in the range of over 3 per cent to 7 per cent over the past month.

This contrasting behaviour may not hold for long and a correction may be under way. If this happens, the weaker stocks could witness comparatively steeper drawdowns. Investors should, therefore, ride this bull rally with fundamentally sturdy stocks rather investing in shares rising on fluff.

Event of the week

As India Inc revs up its machines, it seems to have hit a speed bump with the ongoing coal shortage. Unanticipated increase in power demand, disrupted production and dispatch due to heavy rains as well as inadequate build-up of inventory before the monsoon has resulted in a coal shortfall.

This has culminated into a power crisis as coal accounts for about 70 per cent of the nation’s electricity mix. Panic spread as a majority of thermal plants reported low stockpiles yet the power stocks continued to roar in trade with the S&P BSE Power Index rising over 6.82 per cent this week. This is because investors are looking at the favourable regulatory efforts and the marginal surplus of coal supply over daily consumption which is hinting towards a slow buildup of inventory. Investors should refrain from aggressive investments in stocks which have already shown steep upmoves at current levels.

Technical Outlook

Nifty50 index formed a big bullish candle and closed the week at a new all-time high. The bullish sentiment is at its peak which is usually considered unfavorable for creating new long positions. The benchmark index is also approaching the rising resistance line, which indicates a limited upside potential in the short term. We suggest traders to not create fresh long positions and wait for mild dips to time their entry better. The immediate support on the downside is now placed at 17,850.

Nifty50, Nifty, Q2 earnings, market ahead, inflation

Expectations for the week

Quarterly earnings will guide the mood of the market now and they are expected to be create some buzz of the coming week as they gather pace. Dalal Street would be all ears for any management insights to determine the future outlook of earning trajectory. With expectations that companies would continue their momentum of the previous quarters into the second quarter, investors may see whipsaw movements in the coming week driven by hits and misses of earnings compared to the market’s estimates. Investors should stay put and place more emphasis on the long-term aspects rather than short term headwinds.

Nifty closed the week at 18,338, up 2.48 per cent.

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