The domestic stock market lost steam during the week gone by and slumped due to the twin pressure points of rising bond yields and crude prices along with the rupee crossing the 68 a dollar mark.
Frontline FMCG companies surpassed growth expectations by posting double-digit PAT growth. HUL reported 14.2 per cent rise, while ITC delivered 9.8 per cent increase. Britannia increased PAT by a whopping 25 per cent, which has kept Nifty on a strong wicket.
However, the same is not true for smallcap and midcap stocks. They have been beaten down hard due to the weak sentiment and lesser liquidity in the system amid rising interest rates. Sooner or later, even the heavyweights will correct in line with the smallcap and midcap indices.
Headlines in the media such as Crude on the boil, Oil a big worry, Crude to touch $100, Iran to drive oil prices higher – all these indicate sentiments are super bullish, but then that is how tops are made.
The oil chart below shows a contrarian picture that it is time for the bears in crude oil and the bulls will soon run away. The chart is self-explanatory.
Events of the Week
Does the Karnataka conundrum really matter to equity investors? Swinging political fortunes in the Karnataka elections, being the most watched out event of the year, popular media opinions and perceptions were so heated that to the common man the election outcome would have felt like a make-or-break event.
But Mr Market is far more mature and is really not bothered about the outcome of the state elections, save the shortlived kneejerk reactions.
The market has made an intermediate top by forming a shooting star. Lack of momentum since the previous few weeks had signalled fatigue in the market, but eventually a shooting star pattern confirmed the top.
Other smallcap and midcap indices are still weak and expected to make a bottom sooner than the Nifty50.
We will assess at that time when the bottom is made. Currently, the market is expected to head lower.
Traders should not short but wait for lower levels to create long positions.
Expectations for the Week
The market will remain extremely volatile with a corrective bias since majority of the earnings season is mostly over and there is a worry of rising interest rates. US bonds yields are kissing their seven-year highs, and there is no reason why it cant still go higher. This will keep the market under pressure. Panic will strike if and when US bond yields reach the 4 per cent mark, but till that time, it will certainly have negative influences.
Look out for key results next week such as that of Cipla, Bosch, MGL, Dr Reddys and IOC and the outcome of the Karnataka floor test, which will add to existing volatility. Investors are expected to be on the sidelines till clarity emerges. The Nifty50 closed the week at 10,596, down 1.94 per cent for the week.