Markets on Cloud Nine: Whats Next?
The year 2020 has certainly been one of unexpected surprises. But even in the midst of tragedy and uncertain times, the stock markets have pleasantly surprised the market participants. After a tragic fall from the level of 11,618 to 10,790, the Nifty index has gained almost 1,044.60 points or 9.67 per cent from the low of 10,790. The bulls of D-Street are in a T-20 mode as every day they are hitting the ball out of the park instead of taking singles. This is quite evident from the fact that out of nine trading sessions, Nifty has recorded gains of over 1 per cent in five trading sessions.
The broader markets have also been on a song with Nifty Mid-Cap and Small-Cap having advanced nearly 6.89 and 6.86 per cent, but they have underperformed the frontline gauges. One thing that emerges from this scenario is that the big boys of Nifty 50 i.e. the heavyweights such as TCS, HDFC Twins and Reliance Industries have been the architects of this rally. What is more exciting about this rally is that there is a concept called faster retracement in technical parlance and this has been on display. The index has retraced past 19 sessions’ fall (11,794-10,790) in just nine trading sessions.
The faster pace of retracement signifies robust price structure. Market participants, who have spent time in front of their trading terminals while rejoicing in the market rally and those who have seen their stocks skyrocketing in the last two weeks, need to be thankful to the flurry of promising signs indicating a faster pace of rebound in economic activities. The same has been seconded by CII President Uday Kotak as he commented that the recent high-frequency data showed “promising signs” of recovery in various sectors and hoped that these, coupled with reforms in areas like labour and agriculture, will lead to a faster-than-expected rebound in economic activities.
Further, banking industry veteran KV Kamath said that GDP growth is expected to return to near normalcy as one goes towards the rest of the fiscal year. In the last editorial we spoke about the automotive sector and we expected Nifty Auto index to touch the level of 8,400 in view of the forthcoming festive season as well as the timely and widespread monsoon. The index has touched a high of 8,236 and is within striking distance of our first target. We hope investors and traders who acted on our advice have reaped decent profits.
IT bellwether TCS which has officially fired the ceremonial starters’ pistol for the Q2FY21 earning season on October 7 has reported better-than-expected performance led by broadbased growth across core verticals and geographies. BFSI (+6.2 per cent), retail and CPG (+8.8 per cent) and life sciences and healthcare (+6.9 per cent) have led the growth curve. All the geographies showed good sequential growth, with North America growing 3.6 per cent, UK +3.8 per cent and Continental Europe +6.1 per cent. Emerging markets also grew well, with India growing 20 per cent, MEA +8 per cent, Latin America +5.5 per cent and Asia Pacific +2.9 per cent.
Further, the board of directors of Tata Consultancy Services (TCS) approved buyback worth Rs 16,000 crore. The comment by Rajesh Gopinathan, CEO and Managing Director was like music to the ears of market participants as he said, “What we are witnessing right now is the start of the first phase of a multi-year technology transformation cycle. The strong order book, a very robust deal pipeline and continued market share gains give us confidence for the future.” Technically, the stock witnessed a breakout of the first stage, a consolidation pattern which has a depth of nearly 34 per cent and the pivot point of this breakout was around Rs 2,300-2,360. And if we calculate the target as per the pattern depth it works out to about Rs 3,000.
Coming back to the market, one concern which is definitely on the minds of market participants is about the roadmap ahead. At this moment, our advice to traders is to be with the trend and not fight with it for the sake of the good old cliché: ‘the market can remain irrational longer than you can remain solvent’. Why argue against what the market is signalling through price action? Just hop on and ride till the wheels fall off and then rotate into the opposing direction when the bear gets resuscitated again by closing below the prior bar low.
