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The domestic stock market’s behaviour during the week seems to indicate the beginning of its first leg of a new bull market.
Massive buying emerged in smallcap and midcap stocks, which spilled over to largecaps, which indicated that green shoots of a new bull market are slowly getting visible, considering that the upward movement was very sharp and quick.
Nonetheless, swift profit booking and corrections are bound to occur going ahead.
Moreover, global economic scenario doesn’t look very encouraging as ECB has just changed its stance from hawkish to dovish.
This means the European economy is likely to show suboptimal growth, which doesn’t augur well for the global economy.
There seems to be no end to the Sino-US trade war.
Although the details are still under the wraps, Huawei’s intent of taking on the US government head on is a hidden signal that relations between the two superpowers are not amicable.
This does not spell good for global equity markets and Dalal street will also be in no hurry to move ahead.
It would drag and correct till the election outcome.
Event of the WeekThis being an election year, the middle and lower strata of society were the receivers of bountiful benefits from the government, which may look pleasing at first instance but the axe is likely to fall on the full-fledged budget of the new government.
Direct tax collections for FY19 were estimated at Rs 12 lakh crore but in the first nine months, the collection is just Rs 8 lakh crore.
Some estimates show the shortfall is likely to be of Rs 1 lakh crore by the close of the year.
Such deficit is unseen in the recent past.
Larger repercussions lay ahead for the economy in terms of government borrowing, the interest rate cycle and the government’s ability to spend on infrastructure, which will adversely affect the equity market in the second half.
Technical OutlookNifty50 is facing resistance at the upper channel of the trendline.
The undercurrent of the market is still sideways, which can be seen from the flattish slope of the trend lines.
Since the market is facing resistance at the upper end of the trend channel, a correction is expected to 10,900 levels on Nifty50.
The formation of small bodies in price action charts also indicated exhaustion, but a spike above the resistance levels and then a fall will confirm that the upward move has ended for the time being and the market can go back to 10,900 level, and in the worst case scenario, up to 10,600.
Traders can initiate shorts on every weakness.
Expectations for the WeekMr.
Market is mesmerized in the hope that the ruling Government has increased its chances of forming a strong Government and expectations of a coalition Government are receding, but in politics anything is possible before the actual outcome.
Just like Bloomberg’s fear and greed indicator for the stock market, politics is guided by sentiment of expectation of a stronger Government or coalition Government which will oscillate the markets accordingly.
However, reasons can emerge which may again shift the opinion of the market towards formation of a weaker Government coming to power; the markets will drift lower in that scenario.
Therefore, investors are advised to stay on the sidelines and keep ready a war chest of money to be invested in good quality small and midcap shares after a correction.
Also, allocation to frontline stocks should be made at or around the election month for building a portfolio at reasonable valuations.
Nifty 50 closed the week at 11035, up by 1.58%.
Stock Market
New bull market is taking shape, but hold your horses till elections
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