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The domestic equity market continued to show strength this past week although with lower velocity.
The rally wasn’t with the same thrust and momentum as that in the previous week, as certain sectoral pockets experienced minor profit booking.
But by the close of the week, massive amount of profit booking was seen across the board.
In the meantime, all brokerages have turned positive and are upgrading their target prices.
But when Nifty was around 10,000 in October, 2018, the same brokerages were equally bearish.
At extremes, nearly everyone is wrong.
The current consensus is building for the market to go higher and higher, but it is fraught with risks.
Auto firms are reducing their production targets; cement companies are curbing further price hikes and infra projects will now take a breather as the government has already fired up all its cylinders.
At the ground level, nothing has changed except one thing: the perception of people.
It is perceived that the ruling government might return to power and that is driving the market higher.
FIIs have pumped in a net of $4.5 billion in the past month, which has boosted this rally.
Traders riding on such hopes are riding on a big risk, as the election results are two months away and anything can happen till actual results are out.
It’s time to book profit as the pre-election rally is coming to an end.
Event of the WeekIBC, a due procedure of law, is indeed cleaning up the past mess in the system.
Be it NPAs of Essar, which is almost resolved as the Mittals will take over the assets for Rs 42,000 crore, or RCom’s payment to Ericsson through the due process of law or be it the Supreme Court’s whip to the Singh brothers to make up for international arbitration award by coughing up Rs 3,500 crore, each one is an extremely laudable event to restore confidence and make this country/society more meritorious for investors, lenders and corporates.
These events will go down in history as turning points for the economy.
Technical OutlookThe Nifty50 closed the week with an engulfing bearish pattern on the daily chart.
The prices have swiftly reversed from the upper trend channel, which firmly validates that the correction has certainly begun.
The gaps during the current rally depicted strong optimism and, therefore, the ongoing correction is likely to test first the 11,170 level - a gap opening in the second week of March.
However, good buying support is likely to emerge at 11,100, which is also the 50 per cent retracement of the recent leg of rally.
Traders are advised to liquidate long positions and initiate shorts with Friday’s high as stop loss.
Expectations for the WeekMarkets are likely to remain volatile in the week ahead as fresh triggers look weak going forward.
Since the financial year is coming to an end, liquidity will seep out at least from the debt market.
Some amount of redemption is likely to put pressure on the market, while domestic institutions are expected to remain net sellers.
No sooner does the liquidity tap dry up, the market will begin to correct swiftly.
As the quantum of outstanding trades in the system are high, especially in the banking sector, it wouldn’t be the best time to initiate fresh long positions.
Investors are advised to wait for a correction from the current levels before getting their hands on quality stocks.
Nifty50 closed the week 0.26 per cent higher at 11,457.
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Will Nifty’s current rally last Well, signals are that it won’t
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