Dual efforts take Sensex above Mt 50K; should you book profits now?

Markets witnessed a remarkable week with domestic indices witnessing the highest Budget Day gains in absolute terms, at least in the past 10 years.

The week was power-packed with a no tax hike Budget which was followed by forward-looking policies by the RBI.

While overall markets heartily welcomed the reforms, there was a star performer amidst the crowd — Bank Nifty, which saw a one-sided up move since the pandemic. Given that now the major positives have already been factored in, without a doubt this over-optimism in markets may fizzle out and take a breather going ahead.

But the fact remains that this budget precisely aimed at revitalizing demand at the ground level even if it meant letting go of the sovereign weight of fiscal deficit. A bold move indeed by the government which shows their ambition to strengthen free markets in order to create wealth by privatization and asset monetization.

In addition to this, a capex intensive and infra-led boom is anticipated to provide the much-needed resilience to our economy which was side-tracked under the influence of the pandemic.

Keeping this as an essence, the government manoeuvred to put money back in the hands of people through real asset creation rather than simply doling out free monies to the citizens, as done by the developed countries to support their slowing economies.

Overall, the Budget truly satisfied the majority with its growth projected vision and expenditure plans. Market participants should be watchful of quality names from the cement, heavy industrials, insurance and PSU sectors for the long term as they are major beneficiaries from the standpoint of visionary reforms.

Event of the week

RBI too did its fair share by complementing GOI’s visionary agenda for augmenting growth by keeping the repo rate unchanged while continuing with its accommodative stance.

In order to facilitate massive government borrowing, one of the major announcements by RBI was to allow retail investors to directly invest in G-Secs online. This move suggests that the RBI will now directly compete with banks to attract retail savings deposits. Markets were cheerful as the inflation is estimated to be well under the tolerance band by the next quarter and the liquidity easing to the structurally weak sectors is taken care off especially for the NBFCs. This combined effort on reforms by the Government and RBI suggest the fostering of confidence and growth among the markets and economy which will aid in the bull rally in the long term.

Technical Outlook

Nifty50, which formed a big bearish candle last week, has made an even bigger green candle in the week gone by as bulls are in no mood to give the bears control of the market trend. The overall market breadth remained positive as risk-seeking sentiment prevailed after the budget day. Other global equity indices including emerging markets like Kospi, TAIEX and DAX are all trading near all-time highs while the risk-averse asset classes like Gold and bonds are exhibiting weakness. We suggest traders maintain a bullish bias with immediate support on the downside at 14580.

Expectations for the week ahead

Next week, markets could take a pause to reflect upon the current exuberance and assimilate the upcoming corporate numbers. Markets being forward-looking have already discounted a major chunk of growth expectations, however small time corrections will be a part of this bull favoured journey. Banking sector seems to be a worthy candidate to book short-term profits as it witnessed a bout of optimism due to the Budget. The metal sector may consolidate going ahead given that commodity prices are cooling off. Lately, autos seem to have turned into a crowded trade and given that MoM growth in unit sales is seen maxing out, one needs to be cautious in this space. Broader indices might still have some steam left, however participants should concentrate exclusively on quality names as the up-tide could slow down for the short term. Investors can wait for a short correction before adding fresh monies. Nifty50 closed the week at 14,924.3, up by 9.5%.

(The writer is Head of equity research at Samco Securities. Views expressed are personal)