Market in holiday mood
The domestic stock market began the week in lacklustre mood in the absence of any trigger and the downward momentum got accentuated by the close of the week.
News headlines are being brushed with all-round gloomy pictures due to demonetisation: “worries for microfinance companies”, “consumption stocks see erosion of Rs 1.2 lakh crore in market cap”, “dollar index a pain for emerging markets”.
These have shattered the confidence of market participants and volumes and open interest positions have hit yearly lows.
Foreign portfolio investors (FPIs) and domestic institutional investors (DIIs) have almost balanced the outflows and inflows in December.
Volatility has cooled down quite a bit and combined with the persistent negative sentiments, it offers a convincing argument for investors to buy stocks, going by the adage: “buy when others are fearful.”
Events of the Week:
The Central Electricity Authority has predicted a gloomy picture for thermal power generation in the country, and it is estimating that by 2022 plant utilisation will reduce by 50 per cent, which will not only threaten the viability of many coal-based plants but also slowly destruct the coal and ancillary demand permanently.
The demand gap will be replenished by renewable energy, which will act as a disruptor of the decade. The government has brought stents used for human body under price control, thus sending out a clear message to the pharma companies that reckless profiteering will not be tolerated.
The domestic stock market is likely to test the strength of key support area at the 7,900 level of the Nifty50. The formation of a ‘Doji’ pattern in Friday’s session indicates that the market may be nearing its bottom although a ‘Doji’ in itself is not sufficient to signal a trend reversal.
A confirmation can come only when a strong bullish candle follows the Doji pattern the next day. However, if there is no buying in the followup action next day, then the market can test the support level at 7,700.
The domestic equity market has entered a period of low volatility, low volume and low open interest, which are symptoms that the ongoing correction may be nearing an end.
For traders, such periods of corrections can be nightmarish and the best approach would be to avoid trading and go for the Christmas holidays.
Expectations for the week:-The stock market has entered a state of inertia, which is drifting lower in line with the continuing momentum. This being the last week to deposit the banned notes, there will be a lot of drama for viewers, but this will end the 50-day ordeal once and for all.
Markets will at last come out of this spell and move ahead with the New Year setting in with new opportunities to look ahead. GST is also moving as per schedule and hopefully, it should get implemented by the middle of next year.
The stock market will now look at the Union Budget for important policy directions. Last week we had mentioned that “the benchmark indices may again have to revisit the old support levels to check whether there are still weak players left and only then can the new rally begin.”
The market did the same thing by testing the 7,940 level, which is a multiple support area for the Nifty50. The real action should begin after the first week of January, when the quarterly results season will kick off.
Investors should take the opportunity to aggressively accumulate quality stocks for the long term, as valuations have turned attractive. It is also the time for year-end review of portfolios before the New Year begins. The Nifty50 closed the week 1.88 per cent down at 7,985.
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