Bulls Show no Signs of Tiring Yet !
Even as the markets continue to make new highs and we start 2021 on a bullish note, there is a sense of disbelief in the current equity rally. While there are many things going in favour of the bulls, market participants are worried about whether the stock prices have run up too high too fast. Just to get an idea of how bullish the market is, as many as 190 stocks jumped more than 20 per cent in the past one week. This is phenomenal by any standards. As many as 1,953 stocks were able to beat the market i.e. the Sensex in the past one week while the Sensex gained 1.13 per cent in the week gone by.
Eight stocks managed to gain more than 50 per cent in the past one week alone. These figures talk about the underlying bullish sentiment in the markets. The top Sensex gainer over the last seven days has been Vedanta which was up by 15.76 per cent. Tata Steel gained 12.39 per cent, Tata Motors rose 7.70 per cent, Bharti Airtel climbed up 7.48 per cent and Axis Bank jumped 7.42 per cent. The top Sensex loser was Bajaj Finance which was down by 4.63 per cent. Reliance Industries dropped down by 3.38 per cent, ITC declined by 2.63 per cent, NTPC slipped by 2.01 per cent and Kotak Mahindra Bank was down by 1.94 per cent.
On the sectoral front the telecom and metal sectors ruled the week, rising by around 8-9 per cent each, followed by IT and the banking sectors. Energy and FMCG sector stocks underperformed in the last one week. India recently is emerging as a world-beating market and is one of the most favoured emerging markets by the FPIs. The news on the vaccine front, extraordinary accommodative monetary policy stance by developed economies, RBI’s monetary thrust, lower interest rates, expansionary budget expectation, growth in earnings and positive earnings guidance, upgrade in earnings, V-shaped recovery in the economy and unprecedented amount of liquidity flushing in the equity markets are the factors providing support to higher equity prices.
The question is whether the momentum will sustain and how long can the markets stand their ground in the overbought zone in the near term. There is always a chance of a market correction and especially when the markets are clearly in an overbought zone. The risk-reward is usually not in favour of the bulls. That said, one should not underestimate the strength of the liquidity, which is high as of now and is showing no signs of abatement. One should remain invested in the current markets and look for key supports in Nifty around the 13,990-13,950 zones. The resistance for the market remains at the 14,250-14,300 levels. For Bank Nifty the support remains at the 30,800-30,900 levels while the resistance for Bank Nifty is at the 32,300-32,600 levels.
The medium-term forward multiples for the benchmark index are currently available at acceptable levels as Nifty EPS estimates are upgraded on hopes on earnings’ recovery. Global ratings agency S & P has raised India’s growth targets. A few of the companies in the FMCG and IT sectors are expected to post stellar results this season. Cautious optimism is advised and a strict stop loss should be maintained while taking a near term position in the markets. Investors will start factoring in the budget announcements and a specific set of stocks that can benefit from the budget announcements may come into the limelight in the coming days.
