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  • Jimeet Modi

    CEO, Samco Securities & StockNote
    The founder & CEO of SAMCO Securities, StockNote and the Indian Trading League Company, Modi believes that price is the most important factor in investing. He is credited with developing the AIRM (TM), an approach to screening stocks and businesses in a scientific manner. His role model is Warren Buffett.

Market forces government to act, but will stimulus really help lift the mood?

The domestic stock market has been trading in a broad range of 500 points on the Nifty50.

ET CONTRIBUTORS|
Updated: Aug 17, 2019, 10.46 AM IST
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Nifty closed the week 0.55 per cent lower at 11,047.
The domestic stock market continued wild swings with a downward bias, by pulling down the heavyweights along with it. However, local factors have largely been discounted for now, and there are no unknowns yet for causing further pain on the bourses.

Nonetheless, any negative global cue can further hurt Indian market, but the chances of that are low currently as the Asian markets are slowly becoming resilient in the middle of the adversity facing the US economy. Too much is being talked about the inverted yield curve and the impending recession. But Mr Market is smart enough and has already factored in these factors.

The domestic indices’ downhill journey of 1,000 points has finally woken up the government to act. A stimulus package is expected to be announced soon and it can reverse the trend in the short term. Historically, governments have acted at the tail end of an economic downturn, which in many cases has had a positive impact on the stock market.

This time around, it will be interesting to see how the stimulus causes a turnaround, but till that time the market would be on the edge.

Gold has become a crowded trade with majority of hedge funds increasing their long bets in contrast to December 2017 when the same guys had maximum short positions, after which gold started its ascent. Since gold is in the process of making an intermediate top, equities appear to have made an intermediate bottom. It is risky from a trading perspective to be long on gold and short on equities. In fact, a reverse would be a safer play.

Event of the week

The stock market witnessed a paradox this week. In a bear market, when companies announce expansion plans, stocks get hammered. But in a bull market, such same expansion plans are always cheered.

Balkrishna and Endurance Technologies were live examples of such paradoxes. When the two companies cancelled expansion plans, there was some respite and the stock prices stabilised. However, while the stock may have satisfied short-term traders at the cost of long-term investors, it could be detrimental to the long-term future of these companies.

Technical outlook

The domestic stock market has been trading in a broad range of 500 points on the Nifty50. On the weekly chart, the index has formed a Hammer on the closing basis, signalling the possibility of a rally in the short term. The indicators are deeply oversold, signalling that a short-term bounce is a strong possibility. The market will remain stock-specific and rangebound for some more time. Traders are advised to be cautious but can initiate selective longs on the stocks trading above 200 EMA.
jimeet-graph

Expectations for the week

The earnings season has come to an end and majority of the companies have delivered a disappointing quarter. With a slowdown looming over the economy, companies could do little for revival this quarter and are now mostly dependent on the government to boost sentiment and bring about a change at the grassroots level. The market is likely to receive some booster next week if the government comes out with a booster package and the trade war does not intensify further. Risk-taking investors can look at quality companies for the time being, but staying on the side lines would still be a better option.

Nifty closed the week 0.55 per cent lower at 11,047.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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