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Worries over change in easy-money policy ease, vaccination push adds momentum to domestic market

With the market at an all-time high, it will be sensible to take home some of the money made from this rally.

June 27, 2021 / 10:34 AM IST

The week was off to a good start over the renewed push for vaccination that followed Prime Minister Narendra Modi’s announcement of free COVID-19 jab for all. A large part of the country’s population is expected to be vaccinated during the year, an encouraging sign for the market.

The announcement was hardly a surprise but it gave confidence to the market, holding the promise of a quicker economic recovery. So even though the global market was negative due to Federal Reserve’s monetary policy and chairman Jerome Powell’s testimony in front of the US Congress, India clawed out of the muted trend with a good performance.

PSU banks were among the top sectoral performers on reports of the government zeroing in on Central Bank of India and Indian Overseas Bank for privatisation.

Western markets rebounded with a focus on economic recovery, based on progressive data announcements. It partially offset the concerns over a possible change in the Fed’s policy.

Global investors also seemed to have digested Fed officials’ comment and were looking forward to economic data. Powell’s statement to Congress was also good for the market, as it reiterated the threat of COVID-19 and said inflation was transitory in nature. The Fed pledged to continue policy support, putting to rest the talk of an immediate tapering of bond buying.

Close

In between, volatility returned to the domestic market after it tested all-time high, resistant to crossover to new zone. A weak closing to Reliance Industries added to the fluctuation.

Consolidation continued due to lack of further triggers and flight of foreign funds, as FIIs stepped up selling during the week.

In spite the fluctuation, the market’s performance was on stock-to-sector basis. Apart from PSU banks, sectors like auto and consumer durables did well in anticipation of emerging as the key beneficiaries of the roll back of COVID restrictions and on plans to hike prices.

IT sector also performed well, gaining from the depreciation in the Indian rupee against the dollar. The gain is expected to stay as the dollar is likely to get stronger on a possible change in the Fed's easy money policy and an increase in bond yields. This is also instigating FIIs to sell, further weakening the rupee. Nasdaq, the tech-based index, rose to a record high.

The key question here is to know how the market will perform from the all-time high levels. It seems sensible to take home some of the money made from this rally. While doing that we should take partial profits on a stock to sector specific basis as possibility of a big correction is low. It is likely to end as a period of consolidation than in terms of percentage.

The broader market may still remain strong due to low interest rate and progressive policies. The easy money policy may not vanish suddenly. Stocks and sectors that will benefit from unlocking will do better than the market. Book profits from sectors which have benefited a lot during and from the pandemic and FIIs inflows. Maintain a balance in the portfolio—buy into value stocks, defensives, exports and those that will benefit from unlocking.

Disclosure: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.



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Vinod Nair is the Head of Research at Geojit Financial Services.
first published: Jun 27, 2021 10:34 am
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