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  • Jimeet Modi

    CEO, Samco Securities & StockNote
    The founder & CEO of SAMCO Securities, StockNote and the Indian Trading League Company, Modi believes that price is the most important factor in investing. He is credited with developing the AIRM (TM), an approach to screening stocks and businesses in a scientific manner. His role model is Warren Buffett.

Nifty in for lockstep rally from here on: Keep buying on dips

Nifty50 bounced back after correcting 50 per cent of its previous rally.

ET CONTRIBUTORS|
Updated: Oct 12, 2019, 10.58 AM IST
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Nifty50 ended the week 1.13 per cent higher at 11,301.
The domestic stock market witnessed a paradigm reversal of sentiments during the week gone by. The government’s all-out efforts – be it in the form of increasing dearness allowance to 17 per cent, lowering of corporate taxes, ensuring timely tax refunds, nudging capital expenditure by PSUs – to strike the right cords is indeed paying off, as has been RBI’s interest rate reduction. This is increasing getting reflected in the confidence seen on the domestic bourses.

A steady inflow of SIP money into mutual funds at around Rs 8,200 crore a month seen in August has helped build strength in the stock market. On the other hand, FPI data shows outflows have reduced nearly by a half, which in a way indicates that they can soon turn bullish, given the increased optimism in the economy.

TCS reported weaker profit growth on a YoY basis at a negligible 1.65 per cent, indicating that all is not well with the US economy. This being an election year in the US, a drop in the GDP growth run rate from 3.1 per cent to 2 per cent suggests that President of the United States (POTUS) will have to crack the code of the US-Sino trade war fast.

If he fails to get that, the US may go into a severe recession, implying a major fall in the US bourses, which would reduce President Trump’s chances of re-election. Hopefully, POTUS will act wisely to resolve these conflicts immediately in the interest of the global economy.

Event of the week

A humongous Rs 19,000 crore worth of online sales in six days by two dominant e-commerce players is being celebrated and interpreted as signs of revival in consumption demand.

However, we guess this is coming at the cost of the brick-and-mortar retailers. As the famous adage goes, ‘One man’s loss is another man’s gain’.

Concentration of business in the hands of few giants is considered as a bad growth prescription for any economy, more so for India given the huge population and SMEs across sectors. If these SMEs fail to grow in the real sense, India’s consumption story may not play out to its fullest potential.

Technical Outlook

Nifty50 bounced back after correcting 50 per cent of its previous rally. The ascent is likely to continue, but the velocity would be slower compared with the previous rally. All the indices are depicting the same lockstep rally, indicating that there are chances that Nifty50 will again test the 11,670 level in the medium term. ‘Buy on decline’ should be the strategy for traders with a stop loss below 11,000.
jimeet-graph

Expectation for the week

We certainly believe the corporate numbers will largely guide the mood of the market in the week ahead. To begin with, TCS’ growth numbers and outlook have largely disappointed the Street, whereas IndusInd Bank’s numbers triggered mixed sentiment. On an overall basis, there is likely to be a mixed set of numbers, which means revenue growth will be slower than that in the previous year. Since the market has well corrected in terms of time and price, the same may not be taken negatively by the market.

Hopefully, this earnings season will revive investor sentiments in the market and bring back the long forgotten bull spirit of the FPIs. The Reserve Bank of India has rejected the proposal for merger of Indiabulls Housing Finance and Lakshmi Vilas Bank, in signs that it does not want NBFCs to dictate mainstream banking business. Given the liquidity crunch and trust deficit, housing finance business should come back to the biggies, namely HDFC and LIC Housing Finance, which would make them compelling propositions at current valuations.

Bearing this in mind, investors should selectively place their money in private sector banks, metals along with consumer discretionary for constructing a relatively safer portfolio.

Nifty50 ended the week 1.13 per cent higher at 11,301.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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