Equity markets seem to be on steroids. Should you book profit now?

This week, the global market tide was choppy as anxious investors manoeuvred through uncertain currents. Following a short bout of divergence, Indian indices returned to emulating global markets and displayed whipsaw movements in lockstep with the securities overseas. The BSE Sensex surged 1,032.58 points or 1.75% to 60,048.47 for the week ended September 24. The BSE Midcap gained 148.36 points or 0.59% to 25,194.84, while the Smallcap index surged 16.55 points or 0.06% to 28,023.34. Likewise, the 50-share Nifty index added 268.05 points or 1.52% to 17,853.20.

According to Samco Securities, investor sentiment swayed between episodes of pessimism and optimism amid fears of a global contagion triggered by a probable default by debt-ridden Chinese behemoth, Evergrande, and the overhang of the Fed’s tapering policy as well as interest rate timelines. However, towards the latter half, as each thread of the story unravelled, the pressure on bourses lessened.

Concerns about China’s Lehman moment and its worldwide ramifications were put to rest as USA junk bonds were relatively unaffected by the fiasco while the yields on their Chinese counterparts surged. The injection of $18.6 billion in liquidity into the banking system by China’s central bank also helped in calming some nerves.

Even the Fed’s hawkish stance, which hinted at tapering by the end of this year, was in line with expectations and had already been priced in by the markets. In fact, following the FOMC meet, S&P 500 ended its 4-day losing streak. Given these factors, the Indian equities have continued to advance scaling new heights again this week. Further, the FIIs’ return after a 5-month hiatus and the support garnered at every dip also point to the continuation of this optimism in Indian indices. As a result, every dip still offers a good opportunity to invest.

Event of the week

In the past week, realty stocks have defied gravity with Nifty Realty surging by 21.22% this week alone.

“This optimism is not unfound considering a supplementary drop in home loan rates which have dwindled to as low as 6.5% ahead of this festive season. The existing demand in housing is expected to be boosted further by increased affordability and various new launches by developers adding to the already dwindling inventory. As a matter of fact, despite stamp duty being reinstated in one of the country’s most expensive real estate markets, MMR, registrations in August jumped by around 16% as against August 2019,” Samco Securities said.

Moreover, to tackle any further potential Covid-waves, some developers have adopted virtual tools to boost sales.

“Considering the existing tailwinds, it seems like realty stocks have rightfully made a comeback. However, the stocks have become overheated in the short term and investors should wait for prices to cool down before entering any long positions,” Samco Securities said in a note.

On the other hand, Amar Ambani, senior president and head of institutional equities, YES Securities said: “We continue to remain positive on the long term outlook of Indian equities. Corporate balance sheets have been significantly strengthened with record equity raise in the last two years. On the revenue front, the listed universe is on firm ground with an accelerated trend of unorganised to organised, digital super-cycle and sustained cost management. We expect the government to continue spending on infrastructure and fast track the reform agenda as we have seen with lowered corporate tax rates, PLI schemes, RBI support, strategic divestments and so on. With accommodative financial conditions worldwide, we see the mega rally in risk assets continuing.”

Technical outlook

Nifty 50 index closed the week again in green, after making a new high of 17,947. While Nifty is trading at new highs, the Bank Nifty ended on a flat closing and continues to struggle around its previous all-time high.

“To maintain the bullish momentum, Bank Nifty will need to catch up. The midcap basket is showing signs of underperformance compared to the benchmark. A failure to surpass the previous highs decisively will be a sign of weakness for the broader markets. The immediate support on the downside for Nifty is now placed at 17,600. Traders are advised not to create aggressive longs at current levels, rather maintain a bullish bias and initiate longs on dips or around immediate supports,” Samco Securities said.

Expectations for the week ahead

The volatility seen in the markets this week may seep into the forthcoming week as well given the monthly expiry towards the latter half. Considering the increased concerns around chip shortage and the resultant dampened sales prospects, monthly sales numbers of the automobile sector are sure to grab eyeballs to determine a future trend in auto stocks. With no major domestic economic data expected in the following week, markets may be dominated by global news flows such as another interest payment on Evergrande’s bond due next Wednesday. Thus, in the current volatile markets, investors must carefully invest only in fundamentally sound stocks as markets are fickle and unpredictable.