Market View – May 2020 (Nature has press the RESET button)
Global Equity market has bounced back as much as 30% (approx.) from the recent lows (Nifty 50, 7500) after falling 40% from the recent life highs (Nifty 50, 12400), although still (Nifty 50, 9200) 25% lower from the recent highs.
As I mentioned earlier in the below stated post that, Nifty 50 might bottom out between 6500-7000 levels. The panic fall got arrested at 7500 and we saw a sharp recovery towards 9000. Although it is holding above 9000 levels since last many days, but till now I have not seen strong delivery base buying above 9000 levels.
Even looking at Derivative data, after Apr 2020 settlement the market wide Open interest has fallen substantially, only in second half of last week I observed some positions getting build up again.
FII’s are continuously in sell mode, above 9000 levels even DII`s are at back foot. Market is consolidating from last many days and now I feel in coming next week it’s likely to break from this range. If the range gets broken on upside, it has to be supported with material delivery base buying and simultaneously long build up in future contracts, else it will not sustain. To my understanding market is consolidating and holding at these levels only as majority participant is expecting the market to fall, but this market is not doing the same which is expected by majority, at the same time fundamental does not justify to move higher from these levels.
Nifty 50, has to trade above 9400-9500 levels to resume its short term up-trend, if that happens it might touch 10000 levels immediately, else it will be moving down to 8800-8900 levels. Break of 8800 will open the door for retesting the recent lows of 7500 and there is a high probability of touching the strong support of 6500-7000 levels as well.
Nifty Bank is looking very weak, Financial sector might see huge meltdown in coming months which might dampen the confidence among investors.
Nifty IT, which was one among sectors holding this market has shown a break down last week. Below 13000 level, IT sector will see selling pressure.
Nifty Auto, is the one which I will be watching very closely next week. If it is able to hold above 5900-6000 levels our market will resume its short term up-trend, break below 5500 will witness selling pressure.
Dow Jones also has been consolidating from last few weeks, last week after sharp correction it bounced back from a physiological support of 23000 odd levels. If it does not break below 22500 next week, any positive news can take it to as much as 25500 levels.
Reliance is the only Jocker in the pack which is supporting this market at these levels, although neither Open Interest data in Derivatives nor delivery data in Cash market support this rise but the fact is, it has and is witnessing interest from across global investors and trading at life high under such global economic scenario.
For next 6-12 months, I don’t think Nifty 50 will be right benchmark to view Indian equity market, we have to be sector and stock specific. Why I say this is because as on today, Financial sector has major weight in Nifty 50, which seems to be in trouble and might see more challenges in next 6-12 months, without financial Index might not perform although there are few other stocks like RELIANCE, INFY, TCS, HINDUNILVR which are generally used for Index management, but still Nifty 50 might underperform broader market. Another reason for Nifty 50 underperformance might be rating downgrade for India at country level by global rating agencies.
As of now as we all are struggling with this pandemic and will recover definitely as well in some time but this world is likely to change a lot. I believe this recovery might take next 4-5 quarters and close to 2021 we might see some stability in our global economies.
In Indian market, as stimulus package impact fizzle out now, our market will follow the cues from Global equity markets. Next week will be crucial, I will be closely tracking levels of Nifty Auto in domestic market and Dow Jones in Global markets, which will decide the near-term future of Global Equity markets.
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