stock market investing: Buying frenzy heats up on D-Street; but be careful when all is well

The domestic market had a roller-coaster week with Monday starting deep in the red as recession fears gripped the entire globe. News of an inversion in the

yield curve

in US created a gloomy atmosphere with the markets tanking. But Mr Market never likes consensus and has a mind of his own. These fears got dismissed the very next day and Indian bourses, like many others, rallied to attain their past peak levels since August last year.

The advance-decline ratio is also currently around 1.7, which shows that the bullishness and the strength in market breadth is for real. All sectors are one by one gaining strength and participating in the rally, which confirms that February was the bottom for midcaps and smallcaps, which had faced investors’ wrath for the whole of last year. We would call this the “Twin Boost” as the Street expects the incumbent government to have higher chances of winning the seats again and the US central bank’s dovish stance is helping attract foreign flows into Indian equities.

But there is a famous saying: “Be careful when all is well.” The ground reality is different, as concerns over consumer slowdown continue to deepen. Weak dispatch volumes in the auto sector along with a reduction in import demand for electronics point out that the slowdown in consumption will impact the overall growth in the economy. And pickup in investments as depicted by our indices is insufficient to offset these factors. This indicates that if the market goes up strongly, then there can be sharp corrections for realignment.

Event of the Week

The primary market is looking up again, especially after the dismal listings seen last year. Chalet Hotels got listed at a 5 per cent premium over issue price in February, MSTC got listed this week at a 7.5 per cent discount to issue price, Rail Vikas Nigam issue has hit the market, Metropolis Healthcare and Polycab have lined up issues for the days ahead.

IPOs tend to slow down in bear markets and see a pickup in bull markets. A revival of the IPO market is a good sign for the secondary market.

Technical Outlook

The Nifty50 is on its way to test a double top. Momentum is at its best, suggesting a euphoric atmosphere which can drive the market to touch the previous high of 11,750. The one-sided runway rally can be bracketed in the narrow trend channel the break of which should be used as a signal to book profits.

Technical indicators such as RSI are hovering around the 70 mark, which isn’t per se dangerous but needs

to be watched closely for any sign of trend reversal. However, traders should ride the wave but protect their long positions by maintaining daily trailing stops.

Expectations for the Week

The forthcoming week should not bring any new surprise at the macro level. However, market participants must start gearing themselves up for the annual earnings, which will be out very soon. With the start of the results season, volatility in stocks will double as politics will also cast its shadow on the indices. The

pre-poll rally

is quite strong and is here to stay for some more time. The broader market will try to play catch-up with the frontline stocks, which will continue to show their strength. Certain pockets are ripe for good investment opportunities like in FMCG and metals. Investors must start looking for quality stocks that are undervalued.

Nifty50 ended the week 1.46 per cent higher at 11,624.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of



Author: Prakash Poojary

Business Analyst

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