The domestic stock market opened in high spirits on Monday with an optimistic view that Nifty will finally cross its long-time resistance at 11,000. It did momentarily. But the happiness fizzled out quicky as the index made a U-turn due to lack of followup buying, non-supportive fundamentals and global uncertainties.

The breadth on Indian bourses has been negative since the last few months and more so this month, wherein Nifty50 has optically made a five-month high but none of the other smallcap and midcap indices marked such high levels. This was a clear symptom of a corrective bounce. Mr Market is now expected to head lower, as all the good news seem to be over and the political hustle-bustle will begin and that will keep stock prices under pressure. It is better to get out now and wait for lower prices.

The storm in the NBFC space is nowhere close to the finish line. It’s more pronounced at DHFL, which has been struggling with one issue or the other since September last year.

Looks like the economy is really starved of liquidity, as NBFCs are known to generate one-third of the credit and these very NBFCs are going through a crisis. It shows that the economy is facing problems at the very grassroots level that generates consumption-led growth, though RBI has made little effort to contain their problems.

Event of the Week

The sixth bimonthly monetary policy this week came out with a 25 bps rate cut and a shift in policy stance to ‘neutral’ from ‘calibrated tightening’. However, this reduction could be a one-off event and should not be considered as a new trend of Dovishness, because a lower inflation rate caused a rate reduction this time. No sooner the inflation starts rising again, monetary loosening might end.

Technical Outlook

The Nifty50 formed a Doji pattern on the daily chart on Thursday after a strong upward move. Therefore, the current fall indicates an evening star or a reversal of the uptrend.

Other indices such as Nifty500 and midcap and smallcap indices are in divergence with Nifty50, which means there is weakness on Dalal Street, which will take the prices back to 10,633 level quickly.

On the weekly chart, a Head and Shoulder pattern is developing. If it breaks the neckline, it will be the start of major bear market. Traders are advised to go for aggressive shorts with the weekly high as stop loss.


Expectations for the Week

The earnings season is almost over now. Corporate numbers will not drive the prices but one must look out for global events for relevant clues. Markets will steadily move lower due to lack of positive triggers. Profit booking should be considered in IT and select pharma stocks, which have rallied on the back of good numbers. Risk-taking investors may consider investing in the chemicals sector, as some of the stocks in this sector have corrected sharply by around 50-70 per cent and now is the time to dive into them.

As Warren Buffett rightly says “Opportunity comes infrequently. When it rains gold, put out the bucket and not the thimble.”

Nonetheless, investors are advised to stay

on the sidelines until such a definitive opportunity of gold emerges.

Nifty50 ended the week 0.46 per cent higher at 10,943.