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New Year set to begin with high expectations! Hope it delivers

Markets whipsawed its way through the week with good profit booking on Thursday due to monthly F&O expiry. Street participation and volumes were far lower than the previous few weeks, which aptly captured the mood of the holiday season, both locally and internationally. But this narrow participation was visible with broader indices trying to play catch up, even though, buying seems to be eluding the broader market, especially smallcaps and midcaps.

Nifty has returned 12-13 per cent for the year, but smallcaps and midcaps have delivered negative returns, disappointing the investing community at large, especially Indian retail investors, who have heavy exposure to such stocks. During the past few weeks/months, the government had genuinely tried to lubricate the economy, the results of which can be expected only in the first quarter of next year. The market is likely to move sideways with an upward bias amid hopes of a revival package in the Budget.

Calendar 2019 witnessed one of the most hated rallies, with only a few pockets of the market creating wealth while a large spectrum of stocks still languishing mainly due to the somber economic scenario captured in the lowest GDP growth in last six years. But such times have occurred in the past in 2015-16 when the indices had fallen over 20% even when the economy grew nearly 8%.

The logical conclusion of this divergence is the hopeful nature of investors, who are investing when the economy is at the bottom, so they can smartly reap the benefits when times change. Considering the current market rally, the most likely scenario seems to be a turn in the economy a few quarters down the line, which will justify high valuations later.

Event of the Week

Expectations of a truce in trade tensions with the US-China trade deal and other positive global factors should have led to lower prices for precious metals, but the opposite seems to be happening. In the past few weeks, gold and silver prices have taken a U-turn and rallied handsomely. It could be a forewarning for equities as well, which are expected to experience profit booking, especially in the developed economies.

Technical Outlook

Nifty50 is trending higher. However, it may face resistance at 12,300 level wherein profit booking may emerge. On the weekly chart, Nifty50 has formed a Doji pattern, indicating confusion. Many sectors are not replicating the buoyancy in Nifty50, and hence, the market will only see stock-specific movement going forward. In case Nifty50 decisively trades below 12,100 level, then a bout of heavy profit booking can be expected till 11,800 level. Traders may selectively take long positions with tight stop loss at weekly lows.

Nifty50 is trending higher.

Expectations for the Week

Markets are expected to remain volatile with a lot more dilly-dallying next week as the year begins with contrasting forecasts from market pundits. There will be a tint of optimism in the New Year, as the investing community starts preparing for a stellar Budget. But it will be little early to tell how far that can help make people actually tap their bank accounts to start buying shares. Till then, investors should look for quality stocks in the metals, pharmaceuticals, consumer durables and FMCG sectors, which are likely to experience good traction in the New Year given their muted performance this year.

One should not compromise on quality while adding stocks to a portfolio. Nifty50 closed the week at 12,245, down 0.21%.

Here’s wishing everyone a Very Happy New Year!

Source: Economic Times