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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.

Now playing! A tug-of-war between FPIs & DIIs on D-Street. Who will win this round?

In short to medium term, market seems to have priced in all the poison and negative factors.

ET CONTRIBUTORS|
Aug 10, 2019, 11.25 AM IST
0Comments
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As long as gold continues to show strength, it would be safe to conclude that people still have lower allocation to equities.
After witnessing extreme pessimism, equities made a smart recovery, pinning hopes on some government relief in the form of a reduction in income-tax surcharge on FPIs, which may or may not happen. Such sharp rallies are often a result of some pep-talk or relief measure which often fizzle out, trapping the bulls who bought on the hopes of a new rally.

For the fact, Mr Market was so deeply oversold, a rally was in any case due. As long as gold continues to show strength, it would be safe to conclude that people still have lower allocation to equities, as bullion and equities have an inverse correlation and whenever there is less faith in equities, investors turn towards gold for safe heaven buying.

That is the reason FPIs have sold Rs 8,603 crore worth of stocks month to date, which actually has been countered by domestic retail investors by buying Rs 8,113 crore worth of equities during the same period.

As it is a close tussle between the two, only time will tell who would eventually outsmart the other. In the short to medium term, the market seems to have priced in all the poison and negative factors. An economic slowdown has also been discounted for as have been the trade war concerns, which make it an ideal case for the market to see a short-term rally. Metal prices have shown knee-jerk reactions to the trade war, but for a fact consumption will not stop irrespective of who imports or exports.

However, the underlying stock prices do offer contra-buying opportunities, given the risk of cyclicity that may further dampen stocks. But when the cycle turns, the returns would be far above average in the metals stocks.

Event of the Week
RBI’s latest unconventional rate cut by 0.35 per cent and allowing increased exposure limits of banks to a single NBFC were bold moves in favour of lubricating the economy, whose effects will be seen in the next quarter. The market was in an urgent need of government intervention and this decision to take the pressure off the bond market and reduce the cost of capital in the economy were necessary in order to kickstart the investment cycle from the private sector. This policy will ensure liquidity percolates down to the system and provides some relief from the ongoing crisis.

Technical Outlook

Nifty50 has made a Hammer-like pattern after witnessing a sharp bounce from the lows. The rally is not supported by good volumes and, therefore, it’s too early to call a major bottom. However, the market was deeply oversold and, therefore, the bounce was expected. Selective buying on declines should be the strategy for traders. However, the market will face strong resistance at 11,450.

jimeet copy
Nifty50 forms a Hammer-like pattern after witnessing a sharp bounce from the lows.

Expectation for the Week

The market will see speculative swings as there are no important local or global events ahead. Falling bond yields, currencies, trade war, corporate results, domestic stimulus are all done with. Now, market participants will in a way filter stocks and sectors that are promising and have delivered good numbers by giving them thumbs-up and making them rise while weaker stocks whose fundamentals have deteriorated will suffer. Selective private sector banks now offer good values to buy and auto stocks will offer sell on rise opportunities in the coming weeks. Pharma names, too, offer value buying opportunity given the positive surprise they delivered in June quarter numbers.

Investors may invest selectively in the above-mentioned sectors from a short- to medium-term perspective. Nifty50 closed the week 1.02 per cent higher at 11109.
(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.)

Also Read

Union AMC to provide advisory services to FPI

Private banks get to invest client money as FPI: But will it meet client objectives?

Banking, oil & gas get lion’s share of FPI flows

Market engine on overdrive, this time on FPI fuel

Rs 82,575 crore: FPI inflows in 2019 highest in Modi Era

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