A Week of Ups and Downs
The week gone by has been a wake-up call for the bulls. Both Sensex and Nifty cracked by nearly 6 per cent even as the outperforming BSE Small- Cap index on YTD basis slid nearly 8 per cent while BSE Mid-Cap index weakened nearly by 7 per cent in the week gone by. BSE 500 was down by 6.51 per cent during this period. The global markets were not at all supportive and the momentum has clearly shifted, thereby helping bears in the past one week. The rising number of corona virus cases and chances of selective lockdowns in western countries are factors that have spooked the global markets even as the US’ markets kept sliding due to the uncertainty about a fresh fiscal stimulus.
The rising geopolitical tensions did not help the market mood either. The Indian markets did get a shot in the arm with the SEBI diktat leading to positive momentum in the broader markets. However, this was short-lived as the macro concerns dominated investors’ mind. As of now, the sentiment is negative for Tata Group stocks and that has also added fuel to the market fall. Unless and until the new stakeholder is defined, the sentiment may remain negative for Tata Group stocks and hence they may underperform.
However, any deeper cuts in quality stocks from the group may present a value-driven buying opportunity. Tata Group stocks are under pressure after the Shapoorji Pallonji (SP) Group decided to severe longstanding ties with India’s largest conglomerate. The market is concerned whether the Tata Group firms will be able to find the right valuations and manage funds to buy the 18.4 per cent stake of the SP Group. The week gone by saw all the major sectoral indices slip into the red. The BSE healthcare index was the best performing index with a fall of 3.84 per cent in the past one week followed by BSE IT index which went down by 4 per cent.
Other indices such as BSE PSU, BSE Realty and BSE Auto were down by more than 7 per cent even as the BSE Metal index slipped by more than 9 per cent. BSE Bankex was down by about 8 per cent while BSE FMCG slipped by more than 5 per cent. The past one week saw healthy profit booking in trending IT, pharmaceutical and chemical sector stocks. These three sectors have been in the limelight recently and are fetching premiums owing to earning visibility and superior growth.
These are also the sectors that have seen minimum negative impact due to the pandemic-led countrywide lockdowns. Suddenly the focus is on valuation and investors are seen gasping for earning visibility and growth as the market does seem to be in a mood to push the stock prices higher in the short term. Investors in such a testing environment should give importance to earnings’ quality and long-term prospects and not focus on momentum in prices alone. Sectoral rotation is the key in active portfolio management. One must identify which sector is investable before choosing stocks to beat the Sensex.
Banks may continue to underperform while defensives may outperform in spite of ongoing market correction. Investors should also note the surge in US dollar. Normally such a spike is not very healthy for emerging equities as global investors tend to invest back home. One should remain cautious. It is an opportune time to take some money off the table and re-enter the markets when it dips. Buying on dips may work to an investor’s advantage in the current market situation. Technically, the zone of 10,550- 10,640 seems to be a very strong support zone for the Nifty. Watch out for this zone closely while keeping an eye on defensives for outperformance.
