| NASDAQ's Crack Will Rattle Global Equities |
| During the week, the confidence of the bulls got shattered when tech-focused US companies crashed rattling the entire financial markets. Nasdaq's crash does not look like a normal correction but seems like a bigger downward spiral unfolding after valuations sky-rocketed. Given that US elections are only 52 days away, it seems unlikely that US markets will make fresh highs again and there is every likelihood that selling pressure may continue even in broader markets. Crude oil too has given up most of its gains and prices are below USD 40 per barrel on expectations of lower demand going ahead which suggests that global recovery might take longer than earlier anticipated. In contrast surprisingly, gold's move is not hinting at any major crash in the financial markets, given that gold prices consolidated and remained steady even when Nasdaq plummeted. |
| One of the important ways to analyze the psyche of an investor is by measuring mutual funds' cashflows. Contrary to previous behavior, retail investors have aggressively pressed the redemption button in July and August which is at a 10-year high amounting to nearly Rs. 8,000 Crs of net outflows in two months. These manic withdrawals by mutual fund investors give a two-fold indication: Either there is liquidity crunch in household savings rate or the high valuation of Mr. market is making investors cautious. Both these instances do not augur well for Indian capital markets. There is a huge line up of IPOs and FPOs and markets have already rallied by nearly 50% from March lows. If mutual fund redemptions are taken as any valid indication, plans to raise money by corporates and government may undergo a limbo and the entire bull rally might get punctured. In summary, they suggest that markets are at elevated levels and risk reward ratio is absolutely not in favor of investors. There is a lot to lose on the downside and limited gain on the upside if Mutual Funds outflows are analyzed correctly. |
| Event of the week |
| The Supreme Court is yet to pass an order on the issue of charging compound interest and credit rating/downgrading during the moratorium period. The Apex court too passed an interim direction holding that the accounts not declared as NPA as on August 31, 2020 shall not be declared as NPAs till further notice. This direction though gives a temporary relief to the financial services sector but the pain in the overall economy surely persists and is only delayed. Therefore, participants from this space, majorly banks are bound to remain under pressure until there is further clarity on the issue. |
| Technical Outlook |
| Nifty50 after posting a bearish engulfing pattern in the previous week, traded in a narrow range this week. However, the BankNifty index closed on a negative note after forming a bearish cloud cover last week. The overall sentiment remained muted in the market and the bullish move in selected index movers such as Reliance led the nifty index to surge higher. The benchmark index is still trading in an overbought zone on a weekly time frame and we maintain a bearish outlook going ahead expecting the index to retest the lower end of the channel drawn from March lows on a weekly chart. Immediate support and resistances are now placed at 11180 and 11590 respectively. |
 |
| Expectation for the week |
| As we get closer to the US elections, the bigger the theatrics get both politically and economically. Markets across the globe would remain watchful and may react and adapt to any important news from the presidential campaigns. Back home, given the onset of a slack period post quarterly results, markets could be majorly driven by heavyweight constituents. RIL is a top contender to keep Nifty afloat given its second wave of fund raising spree for its retail arm. And this might probably keep the overall market sentiment positive. Subdued crude prices, economies opening up, consolidation of gold may cumulatively indicate that markets are relatively better placed than the situation a few months ago. Nonetheless, investors should not read much into heavyweights as global cues are neutral to negative and should remain cautious. Investors are advised to remain on the sidelines and look to increase liquidity in their portfolio. Nifty50 closed the week at 11464.5, up by 1.2%. |
Comments
Post a Comment