Be cautious, book profit intermittently

Sensex touched the historical levels of 50,000 for the first time ever during the week. However, despite touching new highs, Indian equity markets snapped their three-week gains, with both Nifty/Sensex down -0.4%/-0.3% to close at 14,372/48,879.

The broader market fell more with both Nifty Midcap100 / Smallcap100 down -1.3%/-0.7%. Except Auto (+3.3%) and IT (+0.5%), all other sectoral indices ended in red with Metals (-6.3%), Pharma (-3.6%), Banks (-3.3%) and Realty (-3.3%) being the biggest losers.

Financials and Media too lost more than 2% each. Nifty Metals posted its worst week since September 27 while Nifty Banks snapped its 3-week gaining spree. FIIs continue being buyers, having bought equities to the tune of Rs 4,100 crore, while DIIs were net sellers to the tune of Rs 3,400 crore.

Global markets touched record highs during the week, as investors bet major stimulus from new US President Joe Biden and constant global central bank support which would cushion the coronavirus’s economic damage.

Sentiments were also positive after data showed China's economy was one of the few to report positive growth in 2020. China's economy grew 2.3% in 2020 while many other developed countries struggled on the back of the coronavirus pandemic. However, rising covid cases in Europe continue to worry investors as the risk of further lockdowns and tighter travel restrictions could delay economic recovery.

On the domestic side, positive global cues, sustained FII inflows and strong corporate earnings kept the sentiments high for the most part of the week. In fact, Sensex touched the psychological 50,000 mark during the week but failed to close above that level amidst profit booking.

The news of a major fire breaking out in the Pune-based Serum Institute of India (SII), the Indian manufacturer of Covid-19 vaccine Covishiled, led to fear in the market that the fire incident may disrupt the nation-wide vaccination drive and may endanger economic recovery. Nifty Auto with a gain of over 3% was the best weekly sectoral performer, with names like Bajaj Auto, Tata Motors, Apollo Tyres in the lead.

Technically, Nifty formed a Doji with a long upper shadow on the weekly scale, which indicates that selling pressure is seen at higher zones. Now, till it remains below 14500, weakness could be seen towards 14250 levels while on the upside, the key hurdle exists at 14600-14750 levels. India VIX moved up by 1.1% to 22.4 levels. Volatility needs to cool down below 20 zones to commence the fresh leg of rally for the new lifetime high territory.

Going ahead, markets may continue to remain highly volatile ahead of Monthly expiry and Union Budget 2021. The ongoing earnings season which kicked off on a strong note last week would further add to the volatility.

The Fed monetary policy is due next week which would be the first one post newly inaugurated US President and thus would hold a lot more significance. Overall, the long-term trend of the market is positive, and thus we would advise investors to keep accumulating quality stocks on any dips. However, traders are advised to be cautious and book profit intermittently.

(The writer is Head – Retail Research, Motilal Oswal Financial Services Ltd.)