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Have the bulls lost their grip on Dalal Street? It seems so


An euphoric rally ended on Monday, when Nifty50 crashed 3.35 per cent from its high point. The crash came amid optimism in the banking sector, which was the last one to participate in the current Dalal Street party. Historically, such wide-ranging moves have often been marked as turning points in a market.

Though media might attribute this to the Indo-China border standoff, but the most logical reason was that the market was extremely overbought, optimism was at its peak, FPIs were buying heavily – and herd mentality was at its peak.

When one looks at all these reasons from a realistic perspective, it can be reasonably concluded that the intermediate top is in place for now, and a more tiring and long-lasting correction may begin from here on. The same FPIs sold massively in March and the first half of April. Therefore, too much should not be read into FPI inflows, but investors and traders should adopt a rather sane approach before betting their hard-earned money on stocks at the current juncture.

Indian market has largely mirrored the US markets all this while. However, it seems Nasdaq is repeating its 1999-2000 type Dot-Com rally, although in a different avatar and of course with a different set of companies. The participants today are the FAANG stocks, which by some estimates made their combined market-cap bigger than the entire European Union market. This is, at best, described as height of insanity or irrational exuberance. The current price action in FAANG stocks suggests they might have peaked and a fall may have just begun.

Event of the Week
The Supreme Court is known to have delivered path-breaking judgments in the past, which became make-or-break points for corporates. Currently, the fight between borrowers (strong builders’ lobby) and banks seems to be reaching its pinnacle. No wonder! If businesses could not be run due to force majeure events, then how can interest run 24×7? On the basis of media reports, it looks like the Supreme Court is inclined to give some relief to the borrowers for their hardship due to the closure of businesses during the lockdown. Eventually, banks may have to pay the price, which might cascade to the entire banking sector and Bank Nifty might trace its step back to March 2020 levels.

This needs to be watched closely; Fingers crossed!

Technical Outlook

Nifty50 ended the week gone by on a negative note, forming a bearish engulfing candle after a very long time. The Banking index, which is a major contributor to the benchmark index, also closed with significant losses. The index has been trading at the upper end of the channel on the weekly chart and has been overbought for an extended time along with the global indices. The recent weakness was witnessed across the globe while some emerging market indices have struggled over the past few weeks. We suggest traders lighten long positions in the market and maintain a ‘sell on rally’ approach once the immediate support of 11,100 is broken on the downside.

ET CONTRIBUTORS

Nifty might head to test the lower end of the channel, which is placed at 10,700 level. The immediate resistance is now placed at 11,600.

Expectation for the Week
The domestic market seems to have largely discounted all good factors, as the economy has opened up almost fully. However, the aftereffect of Covid-19 will now be felt in the runup to Q2 and Q3 earnings seasons. Since the market bottomed out prior to the lockdown, by the same logic it should register a top once the economy opens up fully.

Globally, stock markets have bounced back on a varied scale depending upon the size of these economies and the impact of Covid. France is still struggling and its stock market witnessed a below-average bounce. At the same time, Germany has done comparatively better and its stock market has seen an above-average rally.

Going ahead, ground-level reality of the economy will drive the stock market momentum, which seems to be in a dull phase currently. Investors are advised to book profit, increase cash in their portfolios and stay away for a deeper correction.

Nifty50 closed the week at 11,333, down 2.7%.





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