Bulls Versus Bears: Tussle Continues!
In the week gone by, we saw markets not only trading down but also being rescued by the positive sentiment about Coronavirus vaccine development. A follow-up action was missing on both the sides, as currently, every bounce is getting sold in the market. Thus, there is a lack of clear direction in the markets and if we check the performance of the benchmark index-Nifty, it’s almost unchanged since the last Thursday’s close.
The trend traders are clearly feeling the pinch due to the lack of clear direction, which is not giving them favourable trading opportunities in the index but scalpers by moving into lower timeframes might have dig out the trading opportunities. However, this approach is not for everyone and for some, sitting on the sidelines and waiting for more a developed price action may be the better option. Some traders are comfortable taking many trades a day, while, others are not. The current market situation reminds us of the famous saying by American stock trader- Jesse Livermore who used to say, ‘In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be-up or down. The thing to do is to watch the market, read the tape to determine the limits of the get nowhere price and make up your mind that you will not take an interest until the price breaks through the limit in either direction. A speculator must concern him with making money out of the market and not with insisting that the tape must agree with him.’
The flow of earnings has been mixed. Since the street has already factored in subdued earnings for the recent quarter and probably for the next one, the reactions have been subdued.
The recently announced Atmanirbhar stimulus package by the government is largely focussed on providing liquidity and credit support. However, the market participants were hoping and expecting that the stimulus package would focus on placing more money into the hands of individuals in order to boost demand to revive an economy hit by COVID-19 pandemic. Since, most of the measures addressed the supply side issues; the demand recovery is likely to be gradual. The onus is now on RBI and on the banking sector to improve the overall transmission to the much-needed sectors.
Many economists were dejected after the economic package was announced and also, while going through the fine print of the package. They believed that the actual spending is a fraction of what Prime Minister Narendra Modi promised in his announcement. A note by Goldman Sachs economists said that India’s GDP will contract by an annualised 45 per cent in the second quarter from previous three months. This is almost double of what they had predicted in its earlier forecast for the same period.
Now the million dollar question is that why are the markets seen bouncing back from lower levels, if the economic package is not addressing the problems we do have? Given the tight fiscal space and the uncertainty over the peak of infections, we believe that the government would have held back some ammunition for the future even if the things worsen from here on. ‘Handle with care’ is the ultimate motto. Unlike a lot of their global peers, India’s policy makers seems to recognise that, encountered with an unparalleled crisis, their major duty is to keep things stable until it is clear how best to intervene. This can be read between the lines as the country’s Finance Minister said the government would assess the need for further economic measures as the situation evolves.
Going ahead, the zone of 8,700-8,800 is a strong support level and unless Nifty closes below this zone, we cannot be bearish. Traders and investors can retain a stock specific approach and look for high beta names that are showing relative outperformance and look to participate in such counters.
