The domestic stock market continued its celebratory mood throughout the week, as midcap and smallcap shares remained most sought-after in spite of doubly expensive valuations compared with that of the frontline largecap stocks.
Midcap indices are trading at 54 times whereas the headline indices are trading at 24 times.
FPIs have been selling for the past five consecutive months in a row and the yearly net outflow would amount to Rs 45,000 crore, which is the second highest since the global financial crisis.
Domestic institutions have poured in the highest in a decade at Rs 90,500 crore on the back of huge domestic savings being channelled to financial assets.
A record 6.25 crore demat accounts were live with two of the depositories. Approximately Rs 80,000 crore has been sucked out of the primary and secondary markets through IPOs or QIBs this year.
Calendar 2017 was the biggest year of fight between domestic and foreign liquidity. The results, however, would be out only in 2018. Who surrenders first will certainly set the tone for the next big move in the market?
Events of the Week
US finally approved the most dramatic cuts in the corporate tax rates from 35 per cent to 21 per cent and one-time repatriation tax at 14.5 per cent. This is the game-changer for many thriving industries in India, which grew exporting goods and services to the US. India's export-oriented industries will be the first to be directly hit at least in the short term.
MNCs operating in India will also shift back some of their operations to US in order to avail lower rates. By this bill, the US wants to nullify low labour cost advantage enjoyed hitherto by the developing economies, which can now massively derail their growth engines.
Sectors such as textiles, gems and jewellery may face the heat soon. Investors must be cautious in these sectors.
Technical Outlook
The market has broken the downward falling corrective movement (red) line, indicating that the upward movement has resumed. There are wide divergences in the indices. Midcap and smallcap indices have catapulted to new highs by a big margin, but the Nifty50 is just hovering near previous new highs not being able to break out decisively, which could lead to some amount of consolidation and then a up move could be expected. Traders should go long keeping stops at weekly lows.
Expectations for the week
The market benchmarks are expected to trade with upward bias. Front line stocks are expected to maintain low volatility because largely big institutional players will be absent, however mid and small cap will have lot of actions based on news flows.
Not all stocks will participate in the rally going ahead in view of high valuations and upcoming huge line up of IPOs and divestments.
These will suck up the floating liquidity in the system. HDFC twins are expected to scoop up around Rs 24,000 crore, Tata Steel is expected to raise Rs 13,000 crore from rights issue. In January, PSU banks will come in the market to raise capital. Though Rs 24,000 crore has been returned to shareholders in the form of buyback proceeds from two of the India's largest IT companies, Infosys and Wipro, but the amount of outflows from public would be much more in next few months.
The market is poise itself for a budget rally beginning the first week of January. The Union Budget of 2018 would be the most-awaited by India Inc and investors alike, which will set the tone of the bulls sustaining throughout the year or could prove to be a sharp correction depending upon the extent of the populist measures announced.
Investors should begin investment in the form of SIP till the Union Budget every week so that the cost is averaged out over a period of five weeks.
The Nifty50 closed the week at 10,493, up 1.54 per cent. Wish you all Merry Christmas and a Happy New Year.
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