The stock market surprised everyone during the week gone by, as there was no panic selling after the Congress win in major states, which proved that realities of economic dynamics is always the guiding factor and politics is only sentiment, which has negligible shelf life.
Post the rollercoaster ride, Indian bourses strengthened midway through the week on hopes that economics of the country are robust, and markets are above politics. Nifty and Sensex recovered from oversold levels despite weak global headwinds, thus bringing in the necessary stability around these levels. Surprisingly, shares of corporate houses close to the ruling party did not experience a sharp fall, which indicates two things – either Mr Market expects the ruling party to win the 2019 elections or it has become mature enough to withstand the political noise.
The governments disinvestment target for this financial year was around Rs 89,000 crore, out of which Rs 32,000 crore has been raised. Raising the balance amount seems to be a Herculean task given the current state of the market. OFSes are expected in New India Assurance, GIC and NMDC, which will keep stock prices depressed not only for the PSUs but also for the broader market, which will face a subdued effect as liquidity will be sucked out of the system. This will keep markets under pressure till the general elections next year.
Events of the Week
The appointment of a new RBI Governor and Supreme Courts dismissal of PIL against Rafale deal should calm the sentiments of the masses. A coalition is the last thing that India Inc wants at the Centre. The public gives a decisively clear mandate is all that Mr Market is waiting for. A coalition government would likely impact economic growth; stability in the system is the key towards a growing economy. The Rafale deal could be a game-changer in the political conundrum next year.
The short-term momentum is upward, but the strength is weakening by the day. The number of advances is steadily coming down, which indicates that this event-based rally will see profit booking at higher levels. Likely levels for the Nifty50 on the higher side are 10,900 and 11,100, which are 50 per cent and 61 per cent retracement rise of the entire fall, respectively.
Selling will emerge at higher levels. Therefore, traders are advised to be selective on going long, but should be ready to go short on any weakness.
Expectations for the Week
Markets are likely headed towards a broader trading range as the state election phobia is now over. Also, yearend profit booking will keep the market under check. Nonetheless some sectors/stocks have become attractive given the negative narratives in the market that plagued them, leading to decent price correction. In the auto sector, there is M&M and Bajaj Auto whereas CanFin Homes and Indiabulls Housing Finance have become attractive for investment from the NBFC space. Motilal Oswal and IIFL in the financial services sector while Godrej Consumer Products and ITC are available at decent valuations from the FMCG space. All these companies have enough margin of safety and are attractively poised for long-term growth. However, investors must take decisions after taking their individual risks and capital allocation into consideration.
The Nifty50 ended this week 1.04 per cent higher at 10,805.