The bull run we are currently witnessing began when markets plunged to rock bottom valuations due to worries of an unprecedented pandemic. Institutional investors started accumulating stocks on announcement of trillions of dollars of stimulus packages across the globe, high liquidity gush, gradual opening of the economy and improving business prospects. Seeing such a quick rebound in the stock prices, the entranced retail investors entered the market with innate confidence. The FOMO led to record numbers of new retail investors who tend to pick stocks absorbing every possible dip in the market, without examining the fundamentals. Historically, when valuations get out of sync with the underlying fundamentals, hopes and expectations are two distinct riders driving the market upwards in a treacherous territory of greed. This is usually followed by smart money pulling out plugs leading to a sell off or correction. Whether or not we will also witness such intensive sell offs, only time can tell but events of this week are definitely an indicator that investors should tread the road ahead with caution.
Event of the week
As a slew of companies disclosed their quarterly performance this week, whipsaw movements seem to be the new normal for markets. Abrupt correction was seen in several stocks despite a decent set of numbers. While such contradictory movements may seem surprising, they are not incomprehensible. It could be attributable to the fact that investors appear to be placing higher emphasis to the results beating or missing estimates rather than taking a holistic view. Hence, any minor deviations in results from their estimates, is leading to panicky reactions. Investors are advised to take into account long term business prospects of the companies rather than solely comparing performance to various estimates.
Technical Outlook
Nifty closed on a negative note after a volatile week and is still trading in overbought zones. Other emerging market indices are also finding resistance at current levels and therefore a further correction in the index cannot be ruled out. The benchmark index has strong support at the 18,050 levels. Any break below this support level can trigger a bearish sentiment across the market. We suggest traders to maintain a cautious outlook without venturing in too aggressively until the index makes a decisive directional move.
Expectations for the week
It is expected that Mr. Market next week may still find it difficult to hold ground and may remain range- bound. Additionally, with the monthly expiry next week, volatility in the market may persist. After hitting the 40,000 mark for the first time this week, Bank Nifty is expected to be in focus going forward as various banks disclose their results in the approaching week. Considering the pickup in economic activity, improving collection efficiency and stabilizing asset quality, a positive earnings outlook from this sector could be expected. Nifty closed the week at 18114.90, down by 1.22%.