MUMBAI, 22 MAY, 2020 (GPN / By Mr. Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote):  During the week, markets witnessed a see-saw movement and by the end of the week closed in red on fears of global tensions and lack of short-term stimulating measures from the Indian Government. DIIs have started to hammer the sell button on the back of domestic redemption pressures and have sold to the tune of Rs. 7,965.50 Crs in April alone, highest since March 2016. This is expected to further accelerate in times to come as domestic investors may require liquidity to restart their normal life/ operations post easing of lockdown, which most likely is expected from June 01, 2020. FPIs too were seen selling aggressively which is in divergence to their stand in developed markets; since US markets on the back of liquidity and stimulus is attracting global capital for risky assets. The firm stance taken by Governments across the world against China may lead to further deterioration in economic relations which would keep markets under pressure in the medium term. Non-occurrence of good news in the horizon may take markets lower with a soft landing and market is expected to reach 8500 levels in the near term.

Event of the Week

In the wake of rising recession concerns in our economy, the central bank tried to give its best in terms of monetary easing by slashing the repo rate by 40bps and extending the moratorium by another 3 months. This extension of moratorium without-a-doubt would ease ground level gridlock but is perceived negative for banks and NBFCs operating in the listed space. The extension may lead to higher possibility of delinquency rates – crippling their balance sheets which in turn would impact their profitability. Higher inflation in the short term due to supply side shocks is a big worry and though RBI is expecting this to cool down in second half, this may not happen given that a good part of the supply chain would take a long time to normalize. Therefore, higher inflation and lower interest rates will reduce the purchasing power of consumers/investors further reducing consumption in the economy. At best, it can be hoped that things should normalize by next two quarters. Fingers crossed!

Technical Outlook

Nifty50 is now on a declining streak for the last three weeks, after a brief rally of 30% from the lows, which is now trading 20% off from the lows. However, the banking index remained relatively weaker and is just 8% off the lows. Indian indices have decoupled from global markets and underperformed since last couple of weeks. Support and resistance have now shifted to 8700 and 9200 respectively on Nifty50. In the recent week, the index has formed a hammer-shaped candlestick pattern which will get confirmed on close above 9200 in the following week. However, looking at the weakness in the banking space, which holds a substantial weight in Nifty, it seems both the benchmark indices are going to slide lower. We maintain a mildly bearish outlook going ahead and any weakness in global indices will only add difficulty for the bulls to hold the market.

Expectations for the Week

Market is encircled with negative news and the only thing that can really bring back confidence in these dark days is discovery of an anti-drug to fight COVID-19 and a vaccine to keep it away. Quarterly numbers in developed markets such as the US are almost over and the commentary from US CEOs, even the Fed Governor are all pointing towards the worst which may still be ahead of us. Therefore, Indian bourses going ahead will mirror their economic trajectory. Investors are advised to stay away from investing new monies and conserve cash. Nifty50 closed the week at 9039.25, down by 1.1%.