Currently, the market is at a critical level and it will trend cautiously in the near-term with a broad range of 1,000 points in Nifty50 between 8,600 to 9,600.
Market's performance during the last week has been fragile due to rising novel coronavirus cases, questioning the efficacy of lockdown and whether we will be able to benefit from the relaxation announced by the government in the next phase of operational protocol.
At the same time, no signs of a fiscal stimulus from the government for which the domestic market was waiting eagerly and trading positively in the last one to two weeks impacted the trend of the bear rally.
Globally, the market turned cautious too due to likely collapse of trade agreement between US and China due to the COVID-19 problem. While a positive news was heard on May 8 that US and China are expected to have a meeting and discuss the matter positively. At the same time, oil prices stabilised above $30 a barrel providing a relief to oil producing and processing countries, and companies.
Post more than 30 percent rally in the market, from the latest 52-week low of 7,500, to 9,884 intraday high of Nifty50 during the week gone by, the market is concerned whether the rally is sustainable or collapse even below the 52-week low, due to rising COVID-19 cases.
Well, currently it is very difficult to mention that, but the market is still very optimistic that the economy will survive the COVID-19 issue and attempt to reopen its operations more efficiently by undertaking precautionary methods and extra cost, post June with a minimum target capacity utilisation of 30 to 50 percent by corporates. As we all know few industries and services have already started with a capacity utilisation of 20 to 50 percent.
In spite of this, we will have risk of bankruptcy and job loss due to fall in demand unless the world has found success against COVID-19. This thesis that world will be better post June is at a risk since virus cases are not diminishing and operation in red zone are near null which account for 40 percent of India's GDP.
Availability of workers and labourers are also going to be difficult post June since some have relocated, some are considering to relocate due to lack of income and safety, shift to rural region for agricultural work which is going to be the key income during monsoon and return post an improvement in COVID issue.
The rainy season is about to start which is also raising questions like whether COVID problem will increase during monsoon. Well, we do not have concrete explanation that change in temperature will the increase spread of virus. Rather a health concern that other sick issue usually increases in India during pre and post monsoon it will increase the task to manage which is already under pressure especially in red zone.
After the 52-week low the market is floating positively assuming that supportive measures announced by government and central banks till date and more steps expected in the future will not collapse the market. This thesis is valid but of course we need to see concrete fall in COVID cases, scientific remedy and reopening of the economy.
Currently, the market is at a critical level and it will trend cautiously in the near-term with a broad range of 1,000 points in Nifty50 between 8,600 to 9,600, and a negative bias is expected in the short-term.
Any movement from this level will depend on the developments like a strong stimulus by the Indian government and positive meeting between US-China to change the movement in the short-term.
(The author is Head of Research at Geojit Financial Services.)Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.