Where are we?
The week started with weak IIP data for November, which was at a 17-month low of 0.5%. Markets reacted negatively to the data and the Nifty lost 0.5% on Monday. It was the only loss day during the week. However, other key macroeconomic indicators, CPI (2.19%) and WPI (3.8%), for December, gave a ray of hope for a probable rate cut by the Reserve Bank of India. Over the next four days, the Nifty posted positive returns. The overall return for the week was +1.0%.
With greater-than-expected earnings, Reliance advanced 7.99% during the week. This week, Nifty Energy (+4.8%) and Nifty IT (+4.1%) gained the most, on the back of good results. On the flip side, Media (-4.3%), PSU Bank (-2.4%), and Pharma (-2.4%) declined the most. Reliance (+7.99%) and Sun Pharma (-12.1%) were the biggest gainer and loser, respectively, among the Nifty50 stocks.
According to MarketSmith India’s methodology, at the end of the week, Nifty Bank, Financial Services, Reality, FMCG, and Energy are in a Confirmed Uptrend whereas Nifty Metal, IT, and Auto are in an Uptrend Under Pressure. Nifty Pharma was moved to a Downtrend on Friday, owing to rising distribution.
During the week, no new distribution days were observed – the count for Nifty remains at four. A distribution day is when an index falls more than 0.2% with volume higher than the last trading session.
What is in store?
The Nifty is trading 7.3% below its all-time high; the index is finding it hard to retake its previous high of 10,985 amid persistent foreign institutional selling. FIIs/FPIs sold stocks worth Rs 2,318 crore and DIIs were net buyers and bought Rs 1,842 crore on MTD basis. But the trend reversed during the week, as both the FIIs/FPIs and DIIs were net buyers for the week. Global headwinds, such as the U.S. government shutdown, the U.S.-China trade deal, political uncertainty in Europe, and crude oil prices will weigh on Indian markets.
Many companies across sectors are going to report their December quarter earnings next week. This list includes HDFC Bank (10.5%), ITC limited (5.6%), L&T (4.1%), and Kotak Mahindra Bank (3.9%). (The numbers in parenthesis indicates their weightage in the Nifty50 index). Their results are crucial for the market to break out of the ongoing range-bound trade.
That said, until we see a decisive breakout by the Nifty above 10,985 levels, the range-bound kind of trade could continue. On the downside, 10,534 and 10,333 serve as crucial support levels.
What could investors do?
As it is the earnings season, volatility is expected in the market. Seven of the Nifty50 companies have reported thus far – their sales grew by 41% and PAT was up 8% y/y. Margin contraction was observed across companies.
Since we are yet to see a clear trend emerge on the upside, and Nifty Midcap (-0.8%) and Smallcap (-0.4%) underperformed. Investors are advised to wait and take fresh positions only after looking at the company results and management commentary. Ideally, we want the companies to post solid growth rates quarter-after-quarter and year-after-year.
While the overall market remains range-bound, quality stocks from the Financials, IT, and Energy segments look healthy and have done well in recent times.
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