The Indian stock markets will enter into the last fortnight of the financial year 2020-21 on Monday but the ghost of rising bond yields will continue to cast their long and dark shadow on the markets.
As a result, Indian markets, which remained buoyant in the first three sessions of the truncated last week lost ground on the last day of the previous trading week. Nifty lost 144 points (-0.95 per cent) to close at 15,031, while Sensex lost 487 points (-0.96 per cent) to end at 50,792, the week on Friday. Both the benchmark ended almost flat with a minor gain of 0.60 per cent on weekly basis.
On Monday, the markets will first react to the macroeconomic data viz. Index of Industrial Production (IIP) and Consumer Price Index (CPI), an index of retail inflation, came in after the market hours on Friday. The retail inflation came in higher than the previous month at 5.03 per cent for February as against 4.06 per cent in the previous month. The IIP contracted by 1.6 per cent for January as against 1 per cent growth in the previous month. Next, the wholesale price index (WPI) inflation is scheduled for March 15.
Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services said, “While the long-term structure of the market continues to remain positive, we believe that markets may face some hurdles in the near term, till the concerns over the rising bond yields, commodity prices and risk of an increase in inflation recedes”.
At the end of the first week of March, we saw the Biden administration got approval for the third round of stimulus package of $1.9 trillion. This week it was the European Central Bank (ECB), which announced that its bond-buying programme which would significantly pick up pace in the coming quarters.
Even though the European bond yields have come off sharply, the US 10-Year bond yield is still trading at the yearly high level of 1.6 per cent.
Rusmik Oza, Executive VP, Head of Fundamental Research, Kotak Securities said, “All eyes will be on the Fed action going forward. Erratic movement in bond yields is keeping equity volatility on the higher side.”
India VIX inched up by 4.6 per cent and closed at 21.71 levels. Cool down in VIX below 21-20 zones is required for bullish grip and smoother move in the market.
The aggressive stance of Central Banks will make sure that ample liquidity remains in the system, stoking the fears of inflation going ahead. This has impacted Bond yield to push up further and the US 10-year bond yields which were looking to settle at around 1.1 per cent once again shot-up to 1.6 per cent during the week., adversely impacting the equities world over.
On the other hand, the ample liquidity is also finding its way into the primary market and we’re seeing noticeable buzz in the primary issuances as 3 new initial public offerings (IPOs) are lined up next week for the subscription.
Retail investors are the most excited lot subscribing to these IPOs for listing gains and nearly 78 per cent of total stock listings in FY21 have witnessed first-day gains, the highest in at least three years.
Nirali Shah, Head of Equity Research, Samco Securities, cautioned IPO investors and said, “As during such times even poor-quality issues tend to see mind-boggling subscriptions. It is safer to judge on basis of one’s own risk appetite and liquidity requirements, before holding on to these companies for the long term”.
Shah advised investors to continue to ride the bull wave and avoid aggressive investments in overvalued stocks and IPOs.
Indian markets have been following global markets which are nearing the previous peaks. The S&P 500 and Dow Jones Industrial Index are both 1 per cent away from their 52-week highs whereas the Nasdaq Composite Index is 5 per cent away from their 52-week high. The Nifty-50 is 3 per cent away from its 52-week high.
Oza said, “Nifty-50 needs to sustain above 15,000 for a couple of more days for the uptrend to continue.”
Shrikant Chouhan, Executive VP, Technical Research, Kotak Securities said, “However if Nifty/Sensex holds above 15,200/51,250 levels, we can see an upward activity”. In such a scenario he advised investors to maintain a bullish bias on technology stocks.
“Nifty has formed the bearish hammer with a lower high formation in the weekly chart, it is advisable to reduce weak long positions at resistance levels. Buying is advisable in select companies on dips (14,500/49,000)”, Chouhan said.
As we approach the end of this roller-coaster year, markets are expected to remain range-bound especially because of the focus on tax planning and portfolio rejig. Lack of any relevant trigger in the markets could also keep bourses in a tight range. Individual themes such as PSUs could continue to play out if there is any news on disinvestments front and sector rotation could be witnessed in search for higher returns.
Going ahead, updates on the COVID situation and related news will remain on participants’ radars. On the global front, the market will be closely eyeing the US Fed meet for their stance on interest rates and plans to tackle the volatility in the bond yields. Investors would also look for cues from global markets and institutional flows which have been patchy for the last few days.
Nifty has been hovering within the 14,900-15,300 zone, while on the sectoral front there is a mixed trend. In case of a breakdown, 14,700-14,500 zone would act as a cushion. On the other hand, a decisive break above 15,300 would fuel the index to test a new record high.
Ajit Mishra, VP Research, Religare Broking. Said, “It’s prudent to limit naked leveraged positions in the current scenario and wait for further clarity”.
