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Nifty at new highs, but enough good reasons to call it a mirage

The Indian stock market was euphoric this week as it touched new highs on every single day and the market breadth too improve somewhat with smallcap and midcap shares also participating in the rally. Our indices were resilient in spite of negative global headwinds regarding tariff wars, sanctions on Iran and political slugfest among the US, China and Russia.

Once the earnings season gets over, Mr Market will hopefully adjust to the global realities and will be in line with the global indices, which have started to move lower. The S&P500 index is nearing a double-top, which can be a big signal for global equities. In case the double top turns out to be a long-term reversal, then entire global bull markets would be at risk.

Bull markets are currently ignoring the confrontational attitude of the US with the rest of the world, which could lead to a major disasters. One must always remember that “The bulls prosper in peace and the bears in turmoil.”

The current new-high anatomy of the market is very peculiar and the internal health of the market is far weaker than the January 2018 top. This is evident from the fact that the number of shares making 52-week highs are currently 36 against 162 during January 2018 top. All-time highs currently are only 27 against 95 during January 2018 top.

Such a weak configuration of the bull market could never be

the basis for a sustained rally and, therefore, the market is expected to reverse the direction sooner or later and move south.

Events of the Week:

Among key results this week, Lupin PAT fell 43 per cent, PNC Infra PAT grew 244 per cent, AU Small Finance PAT rose 24 per cent, Future Lifestyle PAT rose 20 per cent and Bharat Forge PAT grew 33 per cent.

Overall, the numbers were very good this quarter and it seems at an aggregate level India Inc will post double-digit profit growth this quarter, bringing around gains of GST and the benefits of demonetisation into the formal sector.

Technical Outlook

The Nifty50 is nearing its upward parallel line, which indicates that soon resistance will emerge on the higher side. Some of the sectoral indices are showing both weaknesses and strengths, which suggest a lot of stock-specific divergent movements can be expected. In the largecap space, some fatigue is visible, but as such the momentum is still up and, therefore, a trailing exit stop should be placed below 11,350 level of the Nifty50.


Expectations for the week

Largecap bulls are expected to take a breather and smallcap stocks should play catchup with the rally. But overall, the market is expected to be muted as global sentiments are currently not favouring the bulls. There is a high probability that the turmoil can snowball the equity markets worldwide and India will no longer remain immune.

Since markets are in an unchartered territory, investors should remain cautious, not put in fresh funds at current levels, book profits partially. Overall, largecaps can be avoided as they are currently too overvalued while on the sector-specific front, there can be some traction in the real estate and infrastructure sectors in the coming weeks.

Nifty50 closed the week at 11,429.50, up 0.60 per cent.

Source: Economic Times