As expected, Mr Market indeed corrected sharply, making everyone question the 12,000 target for Nifty by Diwali. However, a swift bounce is natural, when the market trades at new highs. Indian bourses were inherently overbought, and therefore, the correction was all but a natural step for the market to correct the overbought position. The scapegoat was none other than the dollar this time!
However, the bounce seen on Wednesday and Friday should not be taken as the beginning of a new rally, because corrections seldom have such a short period. Given that Fed meeting and global headwinds remain key uncertainties, investors should not take this as a buying opportunity, but should consider booking profits.
The fear over crude oil is overdone. Given the rupee’s rally, we think crude will no longer be a risk to the market in the medium term. Therefore, the most widely expected fear on the Street may not be the oil ghost, but global liquidity tightening by the US Fed, which the bulls will have to wrestle with. Hence, the market should continue its corrective journey till reasonable valuations are reached.
Events of the Week
The most popular and most talked about topic on the Street was the rupee-dollar pair. In social media too, the exchange rate was mocked at across platforms. Bandh and strikes were organised against the rupee’s downward spiral. Exporters have been complacent and are not booking the dollar. At the same time, importers have increased their dollar hedges. All the above factors conclude that the fear has reached its pinnacle, and therefore, the rupee should rally from here on, providing a sigh of relief to the current account deficit. In a way, this is positive for the market.
The domestic market has bounced after taking support at the 38 per cent retracement from the July lows. Not all sectors are showing tendencies to bounce. At the same time, deeply oversold stocks are showing far stronger upward moves than the rest of the market. At present, there is no indication that this is the start of a new rally. Therefore, there is every likelihood that whipsaws will continue. This market needs price and time correction before it can make new highs. For traders, it is advisable to stay away from some time.
Expectations for the Week
The market will continue to trade in a whipsaw manner, which would be a nightmare for traders to take any view on stocks or the market. Although global headwinds are subsiding slowly, but high valuations should deter investors from making fresh buys at current levels. The tussle between FIIs and DIIs continues; FIIs have continued with their selling spree whereas DIIs were net buyers during the week gone by.
The 10-year bond yields have increased from 7.13 per cent to 8.11 per cent in just a span of six months, which does not augur well for corporate profitability. At least, it is good for the country, as the rupee will stop its rout. Soon, equilibrium will be reached, which will give stability to the market. But till that time, the market will struggle to find its feet. There will be shorting opportunities for traders in FMCG and consumer durable sectors, which can be a sell-on-rally, while PSU banks and OMCs could be good buys on dips for traders. Investors should, nonetheless, stay away or consider booking profits on every rise.
Nifty ended this week 0.63 per cent lower at 11,515.
Source: Economic Times