Correction throwing up good chance to accumulate quality stocks

Correction throwing up good chance to accumulate quality stocks

The domestic equity market experienced high volatility during the week gone by and closed in green on some days and in the red on others. The bears mostly held their grip on the benchmark indices.

After Nifty’s swift breathtaking rally from March 2020 lows, it seems logical only that the market would witness a healthy correction after making an intermediate top at the high point of 15,431. Figuratively, this correction can be compared with the steady process of releasing steam from a pressure cooker in order to let the food cook properly.

Markets also need a slow-and-steady approach for it to cook up a bigger rally. Otherwise steam that builds up without an outlet can lead to a bigger unexpected explosion leading to bigger losses for investors. Hence, corrections are a part of market’s behaviour in the long run.

Global benchmark indices in the US, Europe, Asia are all showing a similar trend and facing pressure due to various macroeconomic factors.

Different variants of the Covid virus are clouding economies, raising the uncertainty of renewed lockdowns. Therefore, the bulls have preferred to remain on the sidelines as the global economy attains the much-needed stability amid the second wave of Covid-19.

Even as the macro factors played their part, there was a key development on the banking front this week; the moratorium period for Covid era bank loans has come to an end. Although the move was expected, the true picture of banks’ asset quality will now get clear in the coming quarters.

Most banks have made sufficient provisions for bad loans and seem well prepared, but the real pressure on the books will become visible when the provisional NPAs get reported as actuals. This was one of the main reasons Bank Nifty witnessed heightened volatility during the week. As the benchmark indices came under pressure, investors can make use of the opportunity to accumulate quality stocks, which have witnessed decent corrections from their highs, by allocating a small portion from fresh funds.

Event of the Week

Nifty Auto Index emerged a laggard this week and the fall was in sync to the weakness seen in the global automobile index. Automobile players across the globe have persistently witnessed shortage of semiconductor chips, which has disrupted and even temporary halted production in some cases. The supply crunch and a rise in base metal prices have forced automakers to resort to price hikes, denting demand in the cyclical industry.

Further, as petrol and diesel prices remain high at home, automobile demand continues to be under a strain, all of which caused the selloff in auto stocks. Investors are advised to be watchful of these developments before taking fresh exposure to this space.

Technical Outlook

Nifty50 index closed on a negative note on the weekly chart as it traded at its rising channel support drawn from the March 2020 lows on a linear scale. Market breadth remained mostly negative for the entire week, and almost all the sectoral indices closed in the red. Nifty seems to have found support and opened with a bullish gap on the last trading session. A similar pattern was observed in Bank Nifty as well as other emerging indices, which experienced a small bounce. As long as Nifty trades above the 14,300 level, a short-term bounce cannot be ruled out. Traders can maintain a mildly bullish outlook as Nifty’s immediate resistance now lies at 14,900.


Expectation for the Week

In the absence of any major event, the market can remain volatile on the basis of incoming news flow, especially on rising Covid cases and possible lockdowns. New IPOs can continue to hit Dalal Street, as we approach the last trading week of FY21. As the week is going to be a short one due to the Holi festival on Monday, investors can look for knee-jerk reactions in specific stocks, as an interesting opportunity to buy and commit a small proportion of fresh capital for the longer term arises before the start of March quarter earnings season in April.

Nifty50 closed the week at 14,507, down 1.61%.

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