Bulls May Take A Breather Post Vertical Rise!
D-Street is witnessing a fairy tale saga over the past couple of weeks as Nifty staged a colossal rally of almost 13 per cent from the low of May 27 to the high of June 3.
The supremacy of the bulls was so strong that the markets did not even bother about the rating downgrade by Moody’s and as a result, it rose for the sixth straight session on June 3, becoming the longest winning streak recorded by Nifty after November 2019.
For Indian investors, who are quite habituated to the market collapses or the stocks hitting new lows, this quick run from the lower levels has come as a pleasant surprise. We were more or less prepared and also, mentioned the medium-term targets in our last editorial. Nevertheless, we were expecting Nifty to touch the levels of 9,970 but this fast-paced rally even took us by surprise!
Indian markets that were languishing at the bottom of the performance table as compared to the advanced economies’ stock market performance till mid-May, found its rhythm and now, has outperformed Dow and Nasdaq. Dow has surged 6.7 per cent from May 18 to June 3 and in the same period; Nifty jumped nearly 14 per cent.
The sizzling performance of Indian equity market can be attributed to a slew of factors namely, the FIIs that have turned the net buyer’s month till date of Rs 10,924.87 crore, the timely onset of southwest monsoon over Kerala. As a matter of fact, it is the sixth time since independence that the country has witnessed an on-time arrival of the monsoon.
Other factors include, COVID-19 mortality rate in India, which is 2.87 per cent as compared to the global rate of 6.4 per cent. Also, FMCG manufacturing utilities is between 20 and 40 per cent of the total capacity in April, which gradually increased to the levels of 70-75 per cent in May 2020, hoping for a strong recovery, following economic reopening.
Meanwhile, US has also continued its rising trajectory with Nasdaq approaching record highs, as signs of an economic recovery from lockdown helped the market participants look past US social unrest and escalating trade tensions between US and China. S&P 500 has climbed nearly 39.6 per cent over the last 50 trading sessions, making it the benchmark index’s largest 50-day rally in history.
Meanwhile, Reliance Industries, which has rallied almost 80 per cent from its March lows, has received an overwhelming response on its rights issue. Its rights issue was subscribed 1.59 times and the public portion of the rights issue was subscribed 1.22 times. The allotment of equity shares will happen on or around June 10 2020. Moreover, the rights shares are expected to be listed on the Exchanges on or around June 12. The eligible shareholders paid the first installment of Rs 314.25 per share. The second installment will be paid by the investors in May 2021 and the remaining Rs 628.50, in November 2021. After the final payment, these shares will be merged with the existing fully paid-up equity shares of Reliance Industries.
The current vertical rally is broad-based as 48 stocks of Nifty50 trades above their 50-DMA. Further, all the components of Nifty50 are trading in green as compared to May 18 closing. So, the rally this time looks more convincing. This again points out to the fact that there is no need to worry about the current gains. However, we could see a corrective to sideways phase in the near term as Nifty looks tired after rising for six straight days and the RSI further confirmed a negative divergence on the hourly chart by closing below the prior swing low.
With this rapid rise in the market and most of the targets being met on the upside, we believe that it’s time for a pause before a fresh round of rally begins!
