Look who is buying on D-Street amid tussle between bulls and bears

This week, bulls took charge of the markets and drove the indices upwards on the majority of the days. After three consecutive weeks of correction, Nifty recovered swiftly in a single week, discrediting worries surrounding the potential economic implications from the second wave of Covid-19. Although investor sentiment at the ground level is more cautionary, Nifty50 managed to hold the reversal in trend at least for most of the week.

The key contributors to this move were the DIIs who came to the market’s rescue and bought over Rs 9,900 crore in April against last month signalling India Inc’s ability to steer through these tough times. In a perpetual tussle of disagreement between FPIs and DIIs, FPIs shied away from Indian equities after 6-months of consistent net buying and sold net equities worth over Rs. 8,500 Crs as their confidence faltered looking at the rising cases. Hence, it is important to track how FPIs and DIIs fare over the coming weeks as DIIs stole the show and gained dominance this time around. But our currency pair USD/INR has cooled off from Rs. 75.5 to 74/$ and this may bring FPI buying back.

While the institutional players are busy picking a side in the markets, retail investors are weighing upon Q4 results and are taking stock-specific positions. In contrast to India, the US is facing renewed faith in their economy with the ongoing vaccination drive, further stimulus news, and recovery in economic activity and employment data. During this week’s FOMC meeting, the Fed continued to maintain interest rates at former levels and exhibited confidence in recovery even though it is far from complete. They are clear with their intention to continue purchasing bonds which will further add liquidity into the system, indirectly cushioning equity markets. Mirroring global indices, Indian markets too showed some optimism. They are expected to remain buoyant and investors are advised to continue with their stock-specific investments for the long haul.

Event of the week

Fed’s decision to maintain a dovish stance on interest rates has continued to put pressure on the dollar with the rupee continuing to strengthen for the eighth consecutive day. The gain in the rupee outweighed the pressure from the Covid related situation in the country surprising many. Capital flows away from the greenback and support from other Asian currencies was the major reason for an appreciation in our domestic currency during the week. The current range of Rs. 74 to 75.5/$ reduces the need for any intervention from the RBI at the moment which would bring about stability in the currency markets, eventually favouring bulls on D-Street.

Market outlook

Nifty50 index closed positive for the week and rebounded from the previous resistance level that also coincides with the lower end of the rising channel, which might now act as resistance on the upside. The BankNifty index is also forming a similar kind of pattern with a long upper shadow on the weekly candle. Nifty needs to close above 15040 to keep the bullish momentum going. We suggest traders maintain a cautiously bearish outlook as long as Nifty trades below the rising trendline and keep strict stop loss below 14150 for long positions.

Expectations for the week

Domestic bourses in the following week are expected to be influenced by dual factors: quarterly results and further restrictions on increasing Covid cases. Volatility may also show further uptick as markets are asymmetric in nature and positive news can move the needle to some extent but any bad news can turn to be extremely brutal given the valuations are frothy. The tussle between the bulls and bears will continue in the next week too and there can be tiny corrections in stocks which have already run up following their year-end results. Long term investors are suggested to continue with their investments in marquee names in a staggered manner. Nifty50 closed the week at 14631.10, up by 2.02%.

(The author is Head of equity research, Samco Securities. Views expressed are personal)