Pro Market Outlook | Can robust earnings propel Samvat 2082 to new heights?

Could we be witnessing the beginning of a year-end rally?

Dear Reader,

Indian stock indices have successfully surpassed a significant barrier by closing above their previous highs. The Nifty50 index, in particular, achieved a commendable gain of 1.68% over the week, fuelled mainly by robust buying from Foreign Institutional Investors (FIIs) in the cash market and a wave of short covering in the derivatives market.

However, the broader market struggled to keep pace, with the small-cap index sliding 0.6% and the mid-cap index showing little movement, ultimately closing flat. The FIIs remained net buyers for the last three sessions of the week, but the overall result for the week reflected a slight decline, with net sales totalling Rs 586.76 crore.

As for sectors, the real estate and capital market indices stood out, each rising by 4%, while Fast-Moving Consumer Goods (FMCG) stocks gained 3%. This uptick was primarily driven by a surge in consumer spending during the festive season.

Reports indicate that Indian consumers spent an astounding Rs 1 lakh crore during Dhanteras this year, with gold and silver seeing robust demand, despite significant price increases. The Confederation of All India Traders (CAIT) estimated that bullion sales contributed around Rs 60,000 crore to the total festive expenditure, marking a 25% increase from the previous year, even with gold prices soaring nearly 60% year-on-year.

Across the globe, the US markets appeared to join in the celebratory spirit of Diwali, buoyed by a recent decision between the US and China to temper their rhetoric. Supportive comments from Federal Reserve officials, along with several announcements of deals in the artificial intelligence sector, helped propel the market rally. Additionally, stronger-than-expected earnings from leading US banks further bolstered investor sentiment.

As the year of Samvat 2081 approaches its conclusion, the market sentiment remains enthusiastic, buoyed by a dynamic rally in recent days. Looking ahead, traders will be closely monitoring the impact of quarterly results from major players such as Reliance Industries, HDFC Bank, and ICICI Bank.

Moreover, a positive outcome from ongoing trade discussions between the US and India could potentially propel the markets toward all-time highs.

Market rally lacks breadth

The Nifty finished the third week on a positive note. More importantly, it managed to stay above the weekly averages, and the weekly momentum indicators showed bullish crossovers for the first time since July. This suggests a potential setup for a multi-month advance in the markets. Could we be witnessing the beginning of a year-end rally?

FIIs have covered more than 50,000 short contracts in the past few days as the markets have continued to rise and reach new highs. The net position in index futures, calculated by subtracting short positions from long ones, is tracked daily and reflects the overall sentiment of this investment category. The data suggests a possible double bottom formation compared to the lows reached in April.

Source: web.strike.money

The client-side data reported by the NSE refers to non-institutional positions in index futures held daily at the end of trading. For many days, client positions have been long and at the upper end of the known range. The chart below illustrates a trendline near these highs that has recently been broken, indicating that a reduction in positions has begun. Typically, client positioning data is inversely correlated with the level of the Nifty index. Therefore, if the Nifty continues to rise, we should expect this unwinding to continue.

Source: web.strike.money

Currently, 55% of stocks are above the 200-day moving average (DMA). This analysis includes the components of the Nifty Total Market Index rather than just the Nifty 500. The chart suggests that we are only halfway through the upward trend observed in the data so far. A significant market advance is necessary to reach the upper end of the range. This week, the Nifty closed above the June highs, setting the stage for further upward movement. However, the market breadth was still not very strong, so we don't anticipate a significant jump in the indicator just yet. We need to monitor this over the coming week for signs of improving market health.

Source: web.strike.money

Sector Rotation

Nifty 50 – The Benchmark Index ended higher by +1.68% this week and closed at 25,709.85.

Weekly RRG:

Weakening Quadrant: Nifty Pharma index has seen some improvement in relative strength this week, and the falling momentum trend has halted for now, making it an interesting sector to watch out for in the coming weeks. Infrastructure continues to see some improvement in momentum even this week, but the relative strength continues to decline.

Lagging Quadrant: Nifty Media is the only index in the lagging quadrant where the momentum and relative strength are continuously deteriorating. Many other Nifty indices like Nifty Private Bank, Nifty PSE, Nifty Oil and Gas, Nifty Energy, Nifty Bank and Nifty Financial Services are seeing improvement in momentum. Still, there is no improvement in the relative strength as of now. However, the trend of improving momentum continues, and we can see improvement in relative strength sooner or later. So, watch out for these sectors. Nifty Realty has been gaining momentum over the past few weeks. This week, not only the momentum, but the relative strength has also improved, which is a good sign.

Improving Quadrant: Nifty IT, after showing improvement in momentum for the past two weeks, has again seen a dip in momentum this week. Nifty FMCG continues to see deteriorating momentum as well as relative strength.

Leading Quadrant: Nifty Consumer Durable and Nifty MNC are witnessing a loss of momentum, and the relative strength is weakening marginally over the past few weeks. Nifty Metal and Nifty PSU indices continue to gain strong momentum as well as relative strength.

Daily RRG:

Weakening Quadrant: Nifty Oil and Gas, Nifty PSE, Nifty Metal and Nifty PSU banks are in the weakening quadrant. All these Nifty indices are losing momentum as well as relative strength.

Lagging Quadrant: Nifty Infra has entered the lagging quadrant in Friday's trading session. There is a sharp deterioration seen in momentum as well as the relative strength for Nifty Energy and Nifty Media. Nifty Auto and Nifty MNC have seen a minor uptick in momentum, but the relative strength continues to deteriorate. Nifty FMCG has seen a sharp turnaround, and there is a good improvement seen in momentum as well as relative strength, making it an interesting index to watch out for in the forthcoming trading sessions.

Improving Quadrant: Nifty Consumer Durables and Nifty Reality are witnessing rising momentum and relative strength. However, Nifty IT and Nifty Pharma have seen a turnaround in momentum. The momentum has dropped in Friday's trading session, which is not a good sign. Watch out for the momentum trend for these indices.

Leading Quadrant: Nifty Private Bank and Nifty Bank have seen a meaningful deterioration in momentum as well as relative strength. Nifty Financial Services index's momentum has been falling for the past few trading sessions, but the relative strength is flat. If the momentum continues to decline, then we can expect the relative strength also to deteriorate in the coming trading sessions, so watch out for this sector.

Stocks to watch

Among the stocks expected to perform better during the week are TVS Motors, SBIN, Maruti, Adani Ports, Bajaj Finance, Eicher Motors, Hero MotoCo, Tata Consumers, Muthoot Finance, JSW Steel, PayTM and HDFC Bank.

Cheers,Shishir Asthana