Accumulate good quality firms on declines in market

Indian equity markets ended the volatile week on a negative note despite some pullback on Friday. Indices posted their second straight weekly loss with Nifty/Sensex down -1.6%/-1.7% to close at 14,507/49,008. The broader market too were volatile with Nifty Midcap100 losing -0.8% while Smallcap100 fell sharply by -2.7%.

Pharma (+1.8%) and Metals (+0.6%) were the only gainers for the week. Rest all the sectors ended in red with Media (-6.6%), Auto (-4.1%) and PSU Banks (-3.3%) being the biggest losers. IT, FMCG and Realty were marginal losers down in the range of 0.1-0.8%. FIIs turned net sellers for the week to the tune of Rs 6,281 crore, while DIIs were net buyers of Rs 4,597 crore.

Global cues were weak following sharp rise in Covid cases in US, UK and many EU countries. Germany and the Netherlands extended lockdowns and imposed new travel and business curbs in lieu of spike in Covid cases. Even the fear of potential US tax hikes to meet US President’s stimulus funding dented sentiments.

Read | Seven of top 10 companies lost over Rs 1 lakh crore in m-cap over past week

However, there was some relief towards the end of the week with progress in vaccines distribution with US President Joe Biden announcing a new goal of administering 200 million Covid-19 vaccine doses in his first 100 days in office. Further, positive US jobs data (jobless claims at one-year low) and stronger than expected Q4 US GDP data boosted market sentiments.

On the domestic side, negative global cues, rise in bond yields and spike in Covid cases dented sentiments. Worries over the 2nd wave of Covid-19 in India led to sharp fall in the market. India reported the biggest spike in the Covid-19 infections in five months at a time experts found a new “double mutant variant” of the virus in the country. There was some relief mid-week after Supreme Court’s positive judgment in the Moratorium Case as it refused to extend the six-month loan moratorium period offered by the RBI last year. Also the monthly F&O expiry on Thursday added to the increased volatility during the week.

Technically, Nifty formed a Doji candle and also a Doji Star pattern by combining price behaviour of the last two trading sessions. Now, it has to cross and hold above 14550 zones to witness a bounce towards 14675 and 14800 zones while on the downside support exists at 14400 and 14250 levels. India VIX cooled down towards the end of the week to 20.65 levels. Cool down in VIX below 20 zones is required for bullish grip and smoother move in the market.

The market may remain under pressure in the near term amidst weak global cues, and fast spreading 2nd wave of Covid in India, which could impact the pace of economic recovery. High commodity prices too is a concern and till it cools off substantially, the fear of inflation would continue to loom.

Next week would be a truncated one as far as Indian markets are concerned due to a couple of bank holidays (March 29, Monday - Holi and April 2, Friday - Good Friday), hence the traders would watch the global cues closely and accordingly have positions. Given the likelihood of high volatility continuing in the market for some time, investors would do well by staying calm and gradually accumulating good quality companies on declines in the market.

(The writer is Head – retail research, Broking & Distribution, MOFSL)