INSUBCONTINENT EXCLUSIVE:
The domestic equity market surprised many during the week gone by as it triggered profit booking and reversed the intermediate bull trend
Also, since the last two weeks, open interest in Nifty futures stood at 25 per cent below normal of the previous month, suggesting that
fewer participants are convinced about the longevity of this rally
Moreover, RBI in its first bimonthly review of this financial year observed that since there has been a slowdown last three consecutive
quarters and the macros are not favouring growth
Globally, the growth engines are slowing, forcing central banks to turn dovish, which is why RBI too reduced interest rates by 0.25 per cent
for a second time.
Dalal Street needs to align itself to these realities and is, therefore, heading for a correction, which should probably
last till the last week of May.
Profit booking is expected in sectors such as PSU, private banks, realty, infrastructure and energy, which
were part of the bull run and have already seen a sharp run-up
A mean-reversion is, therefore, imminent and traders may consider shorting only those sectors which have higher probability of seeing a
correction rather than FMCG, auto, metal, IT and pharma, which showed no meaningful traction during this rally.
Event of the WeekAuto
levels, production cuts and slowdown in sales
Market is nearing its all-time high
This is a macro factor divergence, as either auto numbers must increase in order to justify elevated market levels or the market has to
correct to align itself with the ground realities of the economy; and the latter has high chances of happening.
Technical OutlookNifty50 is
showing signs of fatigue, upward price velocity is getting weaker and weaker
Prices are nearing the previous top, which makes the likelihood of a double-top formation more certain
The moment prices break the upward-moving narrow trend channel, a serious correction of the entire rally will start.
On a closing basis,
below 11,550, Nifty50 will confirm the breach of a narrow trend channel
Traders can go short below 11,550 for a swift correction on the downside.
Expectations for the WeekBoth the earnings and the voting season
will drive analysts crazy with the inflow of abundant news information and poll projections
But markets are expected to steadily correct albeit with higher volatility
Since the elections are just around the corner and they will dominate the bourses, investors are advised to wait patiently and not get
carried away by the current rally or the expectation of a particular election outcome.
From a specific sectoral perspective, too many
expectations are built around the IT sector and if the numbers are below Street estimates, they will pose as a big risk to the IT
space.
Nifty50 closed the week 0.36 per cent higher at 11,666.
