Clear signs market has found a bottom; earnings, easing of trade war should kick off a major rally
The market is ripe for a rally with the onset of the earnings season.
Auto numbers have kept the pace of growth in spite of a higher base, giving an indication that all is well at the ground level. Two-wheelers have posted on an average 25 per cent growth, while passenger vehicles have registered 15 per cent expansion, whereas commercial vehicles have registered growth in the range of 20-30 per cent.
The US market was down heavily during the week on fears of trade war escalating, but still the Nifty50 was able to hold above the water. This indicates that the bottom is in place for the medium term. If fear of trade wars couldn’t scare the bulls, what else would? In case of the ICICI Bank episode too, in spite of all the negative news flow, the stock has refused to go down. The market is ripe for a rally with the onset of the earnings season.
Key events of the week
RBI MPC’s assessment of inflation expectations and growth projections were positive surprises to the market. Receding inflationary expectations and a pickup in capital goods production are signs that the growth is healthy and sustainable. However contracting liquidity, risks of higher crude oil prices, escalation of trade wars, higher MSPs in an election year can actually derail the bull party.
In general, a dovish stance of RBI is a sign of big relief, but if the US Fed aggressively increases interest rates, then that would lead to a change in stance of the MPC, which otherwise is not in a mood to increase interest rate in the medium term.
After testing its 200DMA, the Nifty50 has swiftly bounced back. It has also penetrated the downward sloping trend line, indicating that the market is ready to rally. It is likely that the Nifty50 may dip slightly before moving upward. On the higher side, the Nifty50 can touch the 10,600 level in the short time wherein some profit booking can be expected. In the worst-case scenario, prices can touch 10,000 level, which should act as stop loss for positional traders. Buy-on-dips should be the strategy for traders.
Expectations for the Week
The market has found the bottom at least in the medium term. Annual earnings still have one more week to go. In the meantime, Sino–US tariff tradeoff will be watched keenly. If the threat subsides, which in all probability will, the market will stage a smart recovery. The Indian market was subdued because of global factors. The moment stability returns to global markets, the Indian market will race ahead.
RBI has set the stage for PSU banks to write off bond losses in four quarters, which will help them post better quarterly numbers. Some early results show a fantastic earnings season is ahead. Stocks like Sobha Developers had gone up by 10 per cent intraday post earnings announcements. This kind of a trend is likely to continue in the weeks ahead. Investors should aggressively look for quality stocks and invest for the long term.
The Nifty50 closed the week at 10,331, up 2.15 per cent from the previous week’s close.