Keep an Eye on the Fundamentals
The Indian markets and the Indian cricket team celebrated Independence Day in a historic way. The bulls scaled to a fresh all-time high as in a matter of a few days it went from one milestone to another and touched the level of 16,700. Meanwhile, the Indian cricket team too celebrated their victory at Lord’s Cricket Ground in London. Though the end results for the markets and Team India were quite similar, the performance was quite contrasting. The lower batting order of the Indian cricket team performed exceptionally well while for the Indian markets, the lower market capitalisation companies disappointed and only a selected few large-cap names were seen leading the charge.
In the last four trading sessions, the Nifty has advanced 1.25 per cent. On the other hand, Nifty Mid-Cap 100 lost 0.026 per cent and Nifty Small-Cap plunged 1.67 per cent. Talking about the sectoral performance, defensive sectors like Nifty FMCG and Nifty IT were seen taking the lead. On a week-to-date basis, FMCG and IT were up by 2.43 and 2.36 per cent, respectively. If you recall, we had mentioned in our last editorial that Nifty IT looks extremely good and that has truly been the case. Also, our target for Nifty of 16,600-16,640 has been met. Apart from the rise in the Indian markets and Nifty IT index, there was one interesting observation which may leave you spellbound.
The Baltic Dry Index, which is compiled by the Baltic Exchange based in London, has reached its highest level seen since mid-2010 fuelled by strong demand across vessel segments. The index is up by 16.43 per cent on a monthto- date basis. Sentimentally this is good for the shipping companies and hence we have seen a good rise in the stock of Shreyas Shipping and Logistics and Seamec in the last trading session, backed by decent volumes. Momentum traders can keep a close watch on shipping-related stocks for trading opportunities. Coming back to the frontline gauges, with the sharp rise of 5 per cent which has been witnessed in the Nifty 50 index on a month-to-date basis, the million dollar question is whether this momentum would continue or fizzle out.
Given that we have seen a sharp rally in the markets, the Nifty 50 index has reached a critical inflection point where the current uptrend in the index could witness profitbooking. Hence, we recommend maintaining strict stop losses on all existing positions and avoid chasing stocks which are not backed by strong fundamentals. The Small-Cap index which was seen outperforming the frontline gauge, indicating risk-on appetite among market participants, has taken a U-turn from an interesting level. The ratio of Nifty Small-Cap 100 to the Nifty 100 touched a level which was last seen in August 2018 and thereafter reversed. It means that the trend of small-cap outperformance has cooled down and seen to be reversing.
Furthermore, the BSE Small-Cap index has faced resistance of around 161.8 per cent Fibonacci extension and reversed, thereby clearly indicating the small-cap is not in a sweet spot for the time being. Meanwhile, another cause for worry among Indian equity investors is the US Dollar Index which has been surging above the 93 mark. This is likely to trigger a fresh momentum in US Dollar Index if it manages to sustain above the level of 93.3-93.5, and that could further damage the confidence of the bulls. We would advise our readers to reduce their exposure to small-cap and high-beta stocks as they may see time and price correction in the near term. However, for the long term the trend is still intact and in fact a correction in the markets would help too cool off the overbought conditions. And once these overbought conditions subsidise, the markets would rise again with more vigour.
