Diwali likely to add fireworks to market rally, but tread carefully
The week gone by began with a bang and on a positive note, with the Nifty50 showing signs of hope after the massive carnage in the previous week. Everyone had a consensus view that Nifty will break the 10,000 level on the back of continued FII selling and short rollovers in the new series.
But markets are unpredictable, and seldom follow consensus. When everything turns negative, that is exactly when the market reverses. The mid-week rift between RBI and the government created extremely bearish narratives, but if Mr Market wants to rise, nothing can stop it. Indian indices were so deeply oversold that they had to rise. The rally should continue for some more time. However, it could prove to be a dead-cat bounce. But lets wait for further evidence.
One of the barometers to measure the health of an economy is auto sales. In the past few months, the numbers have not been encouraging, which shows feeble health of the economy. Such muted growth could have been due to increasing fuel prices, inflationary tendencies or decreasing purchasing power. Whatever may be the reason, this is not good for the stock market.
Events of the week
While the second quarter earnings season is entering its last leg, some companies have done extremely well. Century Textiles reported a 114 per cent increase in bottomline and Tata Power delivered 85 per cent PAT growth whereas certain companies have faced a hard time as the macros cast a shadow over their margins. BPCL is one of them, having delivered 48 per cent degrowth in PAT compared with that in the previous year. Dabur reported flattish PAT growth at just 4 per cent. Overall, the results were a mix bag last week.
The Nifty indeed took support at 10,000 and swiftly bounced back from the deep oversold levels. Such sharp upward moves will be followed by intermittent pullbacks. The market can reasonably be expected to touch the 10,650 level, which is the 38 per cent retracement, and 10,850 level, which is the 50 per cent retracement.
For traders, buy-on-dips should be the strategy. At the same time, they should avoid stocks that have run up sharply after the quarterly earnings.
Expectations for the Week
The festive euphoria may keep the market elevated, but there are fewer confirmations as of now that the Nifty will touch new highs before the end of this calendar. Nonetheless, the indices have seen a good correction and many stocks are available at cheaper valuations. It seems to be the right time to cherry-pick the market leaders across sectors, as they will glide through the political tide with fewer headwinds.
HDFC Bank, Bajaj Finance and HDFC Life are three names in the financial services space whereas TCS and Biocon could be momentum bets. A government booster to infrastructure will bode well for Asian Paints.
Consumer durables and FMCG players such as Hindustan Unilever and Avenue Supermarts would be safer bets to maintain sufficient portfolio diversification. Auto and chemicals leaders Maruti and Pidilite can also be good picks from a one-year perspective.
We recommend investing a part of liquid assets in these 10 stocks at least with one-year perspective till next Diwali.
Nifty50 ended this week 5.21 per cent higher at 10,553. Wishing everyone a Happy Diwali and a Prosperous New Year.