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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.

Nifty looks exhausted; volumes and velocity get muted ahead of Budget

High inflation acts as a deterrent and, therefore, needs to be addressed.

Last Updated: Jan 18, 2020, 05.03 PM IST
Nifty50 is entering a phase of sideways movement, largely signalling exhaustion on the higher side.
The domestic market inched higher during the week gone by, but this time around, midcaps joined the rally and saw a phenomenal runup. The earnings season has set in and the early numbers look encouraging on a year-on-year basis, courtesy the corporate tax cut.

However, the market seems to be a little sceptic about moving higher ahead of the Union Budget 2020. Signs of a conspicuous rally in the second-rung stocks from across sectors largely signalled that valuations of quality, first-line stocks have become rich.

This is what is making these second-tier stocks move higher in a so-called valuation catchup rally. This was certainly visible in cement, auto and auto ancillary, financial and metal sectors. It indicates that this leg of the Bull Run is nearing exhaustion and would hopefully last only till Budget.

Among domestic macros, inflation is raising its ugly head, which will further tie the hand of RBI in further reducing the repo rate. High inflation acts as a deterrent and, therefore, needs to be addressed.

Expectation is that the much-awaited Budget will address these concerns by debottlenecking supply-side restrictions in agriculture and manufacturing sectors.

Event of the week

As a matter of statistical record, our apex court dismisses review petitions almost all the time. The one on AGR faced the same fate. It has certainly created plenty of noise in the market, but it may not have any near-term implications. Bharti Airtel’s strength, which was reflected in its stock price, was a big surprise to many. However, due to its very small public shareholding (191 crore compared with Vodafone’s 803 crore relatively), the stock price did not witness volatility.

Vodafone Idea’s larger shareholder base caused insane volatility. The lesson here is investors should generally invest in stocks that have relatively low public shareholdings.

Technical Outlook

Nifty50 is entering a phase of sideways movement, largely signalling exhaustion on the higher side. Volumes and velocity are muted, giving an indication that the correction could be shallow but longer. In general, the market is in the overbought zone from a medium-term perspective, which can fall on any negative surprises. Traders can buy on decline with stop losses at 12,200 on the Nifty50. If the index falls below 12,200, it can trigger a major correction.

Expectation for the week

The market is likely to adjust adversely to the superficial Sino-US Phase-1 trade deal, wherein metals -- including steel stocks -- are likely to witness profit booking. Cement and infrastructure stocks, too, have rallied sharply in anticipation of revival hopes from the Budget, and they are likely to see a correction.

Auto stocks will come under renewed pressure given the structural slowdown in demand, which is expected to last a little longer. Small industries like paper, shoes, rubber, sugar will witness volatile movements ahead of the Budget on expectation that import duty might increase in certain categories. On the whole, the market is likely to witness higher volatility but in terms of price, they might move higher before Budget.

Nifty closed the week at 12,352, up 0.78 per cent.

(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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