Markets in a Nutshell
The Indian markets seem to be defying gravity! In our previous commentary, we were expecting some profit booking, and for the indices to hence move in a narrow range. However, contrary to that, the Nifty 50 managed to close at another weekly all-time-high close.
Last week marked the third consecutive week of sustained upward movement for the Indian markets, largely driven by favourable global cues. Support for global markets was also provided by a slew of measures announced by China to bolster its ailing economy.
Consequently, the Nifty and Sensex gained 1.5% each. In the beginning of the week, it was the rate-sensitive sectors like Banking, Financials, Automotive and Real Estate which were in the spotlight. However, later, sectors like Metals and Power too attracted attention.
Despite strength in key sectors, the broader markets underperformed once again - ending flat to marginally lower.
Domestic Non-Events
Post the budget, there has been an absence of any major domestic events. The markets continue to be supported by high liquidity.
The new month will bring in a few data points to closely watch - including current account data, HSBC India Manufacturing PMI, HSBC India Composite PMI and Services PMI. From a sectoral standpoint, two areas standout:
Auto stocks have been looking attractive, and we’ve been positive on the sector. While it was in a consolidation phase, it has been showing strength lately, after a breakout. Automobile sales numbers would be interesting to watch in the coming week, and would have a bearing on the index
The Nifty FMCG Index has been consolidating as well since June 2024, and a lot of leading stocks are still available at reasonable valuations.
Global Positivity Continues
In this catalyst-lacking domestic backdrop, global factors have been the guiding force for the Indian markets.
The US markets have been on a strong upward trajectory, with the all indices trending higher, indicating widespread participation across sectors
China announced several measures including rate cuts, lower mortgage downpayments, lower reserve ratios for banks and even support for companies to buy stocks
Crude prices have been hovering close to US$ 70 a barrel, supporting the import-dependent India
With so much happening, FPI flows are expected to see some volatility. Trends have been mixed for emerging markets so far in 2024, with Brazil, South Korea, Taiwan and Vietnam seeing outflows; and India, Indonesia, Malaysia, the Philippines, and Thailand witnessing inflows.
What Next?
The ongoing global market strength, coupled with rotational buying across key sectors, is supporting continued market gains. The Nifty is now expected to target 26,500, with the potential to reach 27,000, especially if IT stocks show momentum alongside other major sectors.
While IT stocks gave up gains on Friday last week, crucial levels have been sustained. Any positive news from the US markets is likely to life the sentiment for the IT Index. If this happens, the Nifty may also sustain momentum.
However, in the event of a dip, the 25,700-25,900 zone is expected to provide support.
Strategies for Investing
A dip could provide an opportunity to investors to adopt a ‘buy on dips’ strategy, with a focus on sectors like Auto, Energy and Pharma, while being selective in other areas.
However, caution is recommended when dealing with mid and small caps. Lately, the broader indices have underperformed. While the markets make news, over 100 stocks have fallen by 30-35% in the last 3 months.
Despite the Nifty and Sensex reaching new highs, differences within sectors and stocks can lead to investors getting stuck in undesirable places. We recommend a few cautionary measures when investing now:
Prioritise on picking up quality stocks, with strong management teams and long-term growth potential
Give more importance to understanding the value of buying good stocks at lower prices and selling them higher, rather than spending time anticipating a crash or waiting for a correction
While we talk about weekly movements, and provide technical levels, they are merely for guidance and to make sense of the current situation. Anticipating index levels is otherwise a futile exercise!
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