Such sharp rallies are often a result of some pep talk or some relief measure which often fizzles out trapping the bulls who bought on the hopes that a new rally will begin.
The Indian market snapped a four-week losing streak to close with gains of over 1 percent. The Nifty rose 1.02 percent while the S&P BSE Sensex closed with gains of 1.25 percent for the week ended August 9.
The S&P BSE Sensex is now back above 37,000 while the Nifty also managed to reclaim 11,100 levels for the first time since July 31.
The broader market performed in line with benchmark indices as the S&P BSE Midcap index rose 0.92 percent while the S&P BSE Smallcap index closed with gains of 1.62 percent for the week ended August 9.
More than 300 stocks in the S&P BSE 500 index closed in positive while as many as 19 stocks closed with gains of 10-30 percent which included names like Jammu & Kashmir Bank, Venky’s, Apar Industries, Future Consumer, Vinati Organics, Central Bank of India, Jet Airways, and SRF among others.
In the S&P BSE Smallcap index, as many as 71 stocks rose 10-40 percent which included names like Care Ratings, Minda Industries, IFB Industries, LT Foods, Mcleod Russel, Lumax Industries, Rolta India, and Navkar Corporation among others.
The week started on a muted note but then momentum picked up after reports suggested that the government might exempt foreign investors from higher tax surcharge and could roll out measures for auto, realty, and the public utility sectors.
The hope based rally pushed the index back above 11,100 on the Nifty. Considering the fact the slump for the past four weeks, a technical bounce back was on the cards, suggest experts. Hence, investors should not put too much weight on the past two days of upward movement.
“After witnessing ultra-pessimism, equities made a smart recovery pinning hopes on the government to grant relief in the form of a reduction in FPI surcharge tax which may or may not happen,” Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.
“Such sharp rallies are often a result of some pep talk or some relief measure which often fizzles out trapping the bulls who bought on the hopes that a new rally will begin,” he said.
Modi further added that for the fact that Mr Market was so deeply oversold, a rally was in any case expected. “So long as gold depicts strength it would be safe to conclude that people still have a lower allocation in equities, as gold and equities have an inverse correlation to each other and whenever there is less faith in equities, the Street turns towards gold as a safe haven,” he said.
Markets will react to India’s industrial output data which grew two percent in June, a three-month low, according to the Index of Industrial Production (IIP) data released by the government on August 9.
Industrial output, or factory output, is the closest approximation for measuring economic activity in the country's business landscape.
On the macro front, D-Street would also track inflation data as well as any concrete measure which come out from the government side for real estate, auto, and banking sector. On the global front, any developments on the trade war front will keep investors on the edge.
“For the next week, the stocks of Auto, Real Estate, Pharma and FMCG sector could move upward. The market is waiting for the government to provide some relief for FPI surcharge and stimulus for auto sectors,” Romesh Tiwari, Head of Research, CapitalAim told Moneycontrol.
“On the international front, there would be CPI & Core CPI data on August 13, Core Retail Sales, Philly Fed Manufacturing Index, and Retail Sales data on August 15,” he said.
Nifty reclaimed 11,100 levels for the week ended August 9 which is a positive sign but it faced selling pressure around its 200-days moving average (DMA).
On technical indicators, the MACD has now converged upward on the daily chart and also, the RSI has recovered from the oversold zone on the same chart which is now placed at 42.34 levels.
“Nifty managed to hold above 11,100 levels and formed a small-bodied candle on the daily scale while bullish candle on a weekly scale which suggests that buying is visible at lower levels,” Chandan Taparia is Technical & Derivative Analyst at MOFSL told Moneycontrol.
“Now, till it holds above 11,000 zones it could extend its gains towards 11,180 then 11,250 zones while on the downside supports are seen at 10,950 then 10,880 levels,” he said.
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