Eminent market experts tell us how to trade in such times and what will be the course of the market going ahead.
Market benchmarks Sensex and Nifty closed with gains for the week, ending June 26. The S&P BSE Sensex rose 1.2 percent while the Nifty50 gained 1.3 percent for the week ended June 26 compared with 3.5 percent rally seen in the S&P BSE Midcap index, and the S&P BSE Smallcap index closed with gains of 2.8 percent in the same period.
As many as 55 stocks in the S&P BSE 500 index rallied 10-30 percent in a week that includes names like Union Bank of India, SPARC, Hindustan Zinc, ABB India, Glenmark Pharma, BHEL, Bandhan Bank, Adani Gas, Indian Bank, IDBI Bank, Future Consumer, and Indian Overseas Bank, etc. among others.
Rising COVID-19 cases in the US and India, the military stand-off between India and China at the border and the ongoing spat between China and the US on many issues including trade and the source of the pandemic remain pressure points for the markets across the globe.
Eminent market experts tell us how to trade in such times and what will be the course of the market going ahead. Take a look:
Morgan Housel, Partner at Collaborative Fund and former columnist at the Motley Fool & Wall Street Journal (to CNBC-TV18)
Being a realistic optimist and believing in the importance of compounding are among the basic tenets of investing.
"Being an optimist does not mean you believe everything is going to go well, the world will not fall apart at times and we are not going to have pandemics and recession. Being a realistic optimist means we are going to have such issues. The world is going to be a constant chain of breakage, disappointment and sometimes collapse but those things do not preclude the long-term growth," Housel said.
Compounding is not something for which you could go to school and become an expert.
"It is not intuitive. Compounding does not work for 2-5 years. It works for the next 20-30 years. For instance, Warren Buffett added most of this wealth after his 65th birthday," said Housel.
Shankar Sharma, Vice-Chairman and joint MD of First Global (to CNBC-TV18)
The rally in the market is being driven by the beaten-down stocks and not the quality stocks, said Shankar Sharma."If you see the complexion of this rally of the last three months and in particular of the last 30-35 days, quality stocks like Hindustan Unilever, Nestle, Asian Paints have not rallied. In fact, what has rallied is the
Bank Nifty, Realty and stuff like that which I consider the low-quality of the market or high beta of the market," said Sharma.
The moratorium may be bad for the financial sector.
"I believe there are still problems ahead and this moratorium is encouraging and will encourage a lot of bad behaviour. We have to be careful with financials as it is the riskiest end of the market," he said.
Small-caps have witnessed significant gains over the last one month period. Sharma attributed the rise in small-caps to the fact that they had been in a bear market for the last three years.
"From the peak of 2017 to the bottom of March 2020, the Smallcap index had corrected 50 percent. A 50 percent fall in an index, the odds are you are going to see a substantial rally. I won't be surprised if they continue to outperform for some time now given that they had been in a bear market for the last three years," he said.
Joseph Thomas, Head of Research - Emkay Wealth Management
After an unbroken rise in the last two weeks, the markets turned a bit volatile during the week gone by.
This was mainly influenced by factors like the phenomenal rise in the coronavirus cases in the US and India, the military stand-off between India and China at the border, and also with the ongoing spat between China and the US on many issues including trade and the source of the pandemic.
The modification of the US visa regulations, which may likely affect some of the tech companies adversely, and the not so encouraging weekly numbers from the US, also added to the uncertainties.
It is felt that the very same factors continue to be relevant for the markets and would be of consequence to the markets as we move into the next week, and the month-end.
The FPI activity in the coming weeks is something that needs to be watched closely as there are already reports of likely rebalancing of portfolios and resultant trimming of positions. It is also significant that the domestic markets, for the most part of the week reflected the broad trends in other global markets.
Sanjeev Zarbade, VP PCG Research, Kotak Securities
"Markets are seen entering a consolidation phase in the coming weeks with no major trigger. Geopolitical concerns and the possibility of the second wave of COVID-19 remain the near-term risks that could impact investor sentiments. We advise investors to buy on declines from these levels," said Zarbade.
Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote
Statistical evidence suggests that sometimes monthly expiries have registered intermediate tops and bottoms.
July expiry is expected to see lower short interests in the beginning and therefore the velocity of the up-move rally that was witnessed in the month of May and June may not occur again in July. In fact, July can give a negative surprise and can fall decently, if no fresh delivery-based buying emerges.
Markets are still going to be significantly influenced by updates on India-Sino standoff and US-Sino trade talks.
While these influences might only be sentimental but if FPIs start selling, markets can really fall from the cliff as they have already bounced back 38 percent which statistically is a good number for markets to start drifting lower.
All the positives, if any, are discounted, however, any negative surprises may take markets lower. Investors are advised to be cautious, conserve cash and wait on the sidelines. Nifty50 closed the week at 10,383.00, up by 1.35 percent.
Rahul Sharma - Associate Director & Head – Technical & Derivatives Research, JM Financial Services
On the Derivatives front, options data is suggesting a range of 10,000 to 11,000 for this week which is much larger than usual.
On Friday, fresh writing was seen across strikes in Put options whereas the highest addition was witnessed in 10,500 & 11,000 Calls.
India VIX has continued its decline which can be a good sign for Bulls. Nifty July futures saw an addition of 14 percent in OI (as per provisional data) whereas Banknifty OI data remained subdued.
Nifty has closed above its 200-week moving average for the second consecutive week which is a bullish sign.
Supports for the Nifty are seen at 10,200 & 10,000. Advice to maintain longs as long as Nifty sustains above 10,000 for targets of 10,550 & 11,000 in July series.
From the sectoral front, Telecom, Metals and Private Banks are expected to do well.
Deepak Jasani, Head Retail Research, HDFC Securities
Nifty broke out upwards of the previous band of 10,205-10,362 but has formed a new band 10,311-10,408.
On an upward breakout of this band, the Nifty could attempt to test the recent highs of 10,554 once again.
The uptrend could accelerate if the highs of 10,554 are taken out convincingly. On breakdowns, 10,195 remains a crucial level.
Shibani Sircar Kurian, Executive Vice President, Fund Manager & Head- Equity Research, Kotak Mahindra AMC
While the economy appears to be gradually coming back to normalcy, there are challenges. Coronavirus cases across India continue to rise with the change in strategy from saving lives to focusing on livelihood and the opening up of the country.
The supply of labour also remains a challenge with the migration of laborers from urban centres to rural areas.
Global equity markets remained volatile over the last week on the back of the fear of the second wave of coronavirus cases.
However, hopes of continued monetary and fiscal stimulus remain alive. The central banks the world over have infused liquidity in order to support their economies. The rhetoric around the US Presidential elections remains high and the outcome would likely be monitored closely by the markets.
From hereon, for India, the pace of return to normalisation would be the key along with trends of the coronavirus case curve. Border tension with China would also remain monitorable.
Jyoti Roy, DVP Equity Strategist, Angel Broking
Markets will be keenly watching out for key US economic data points like pending home sales, manufacturing PMI numbers followed by the all-important US non-farm payrolls numbers at the end of the week.
On the domestic front, auto companies will be declaring the monthly sales numbers for the month of June which will be keenly watched by the markets.
Therefore, while markets may be marginally positive at the beginning of the week it can turn volatile in the second half of the week based on key data points.
Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services
Given the concerns over economic de-growth and rising infections, the market seems to be taking a pause and consolidating at this juncture.
"Investors would keep a close watch on global cues and geo-political tensions between US-China and India-China to get market direction. We would advise investors to stay cautious and focus more on quality large caps with select exposure to good mid-cap names," said Khemka.
Nifty has to continue to hold above 10,300 levels to get the stability to witness an up move towards recent swing high of 10,555 while on the downside support exists at 10,300-10,250 zones, Khemka said.
Ajit Mishra, VP Research, Religare Broking
"In the coming week, we believe global cues will continue to dictate the market trend, in the absence of any major domestic event. Besides, macroeconomic data and auto sales figures will also be on the participants’ radar. Needless to say, they would continue to keep a close eye on India-China border dispute and any news of fresh escalation might not go well with the markets," said Mishra.
Mishra expects further consolidation in the Nifty index ahead and probable range could be 10,050-10,550.
"On the sectoral front, we’re seeing rotational buying interest across the board. So, traders should focus more on stock-selection and prefer hedged positions until Nifty resumes the trend," Mishra said.
Arun Kumar, Market Strategist at Reliance Securities
Nifty formed a Doji pattern on the weekly timeframe, which usually indicates indecision and mostly acts as a precursor to a reversal.
This formation has occurred near its psychological resistance zone of 10,500 – 10,650.
The near-term oscillators display mixed signals, while the medium-term measures continue in buy mode.
The market internals of Nifty and the broad-based NSE500 index is overbought on near-term and probably reverse over the next couple of weeks.
One should approach the market with utmost caution at this juncture. Since the reversal formations indicate a change in trend, one should note that the market may slip into consolidation or may fall significantly, said Kumar.
"Considering various data points, the index has strong support around the zone of 10,000 – 10,100. Till this range is not broken on a decisive basis, one can expect consolidation. A failure to hold 10,000 decisively could lead to a deeper correction. Select media and communication, energy, commodity stocks may perform better, while FMCG and consumption stocks could be muted," said Kumar.
Dharmesh Shah, Head – Technical, ICICI direct
"In the coming week, we expect Nifty to consolidate in the broader range of 10200-10600 with a positive bias wherein the broader market would continue to outperform. Meanwhile, volatility at higher levels cannot be ruled out therefore stick to quality stocks. Only a decisive close below 10200 would lead to extended breather," Shah said.
Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities
Traders need to be cautious while adding long positions between the levels of 10,450 and 10,550. The reason for the caution is the severe sell-off that the market witnessed after hitting the 10,550 levels. Below the level of 10,180, Nifty would fall to 10,000 or 9,750 levels.
"Our strategy must be to reduce pending long positions below the level of 10,180 as the fall could be severe. For Bank Nifty, the view is the same. We need to reduce long positions below the level of 20,900. It may fall to 20,100 or 20,000 levels. Buy select stocks between 9,800 and 9,750 levels," said Chouhan.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.