17660In view of reduced inflation and expenses, will it be right to invest in IT stocks?

Indian markets and the US showed divergence in their behaviour this week. While the US was on its journey to making all-time highs, Indian markets were experiencing a correction.

Fed’s comments on leaving interest rates unchanged and their plan to continue purchasing bonds indeed restored momentary confidence amongst investors but the behaviour of the bond market was distinctly opposite. Reaffirmation of their dovish stance moderated the market’s concerns.

However, the treat was short-lived and in spite of his confident comments, bond yields along with commodity prices across the globe saw a spike. It appears that all the optimism was already discounted by the markets and Indian equities witnessed a bout of evaporating exuberance.

Apart from rising yields, Indian indices are facing uncertainties from the second wave of coronavirus and ascending retail inflation. These concerns have gradually dented the market’s sentiment and added to the pressure. Even though the number of Indians getting vaccinated is increasing, market participants have turned wary of equities.

Foreign investors too have become net sellers in the current month on some days. This suggests that bulls are losing their grip and are unable to hold the market. On the contrary, retail investors are flooding D-Street with liquidity mainly through primary markets. The six IPOs from this week witnessed excessive funds being allocated just for their subscription. The overall set-up of the markets is currently portraying caution. Investors are advised to remain invested for the long term with a 5-10 year horizon while medium-term investors can make aggressive entries piecemeal once markets start showing signs of stability.

Event of the Week

The DFI bill of Rs. 20,000 crore was cleared by the Union Cabinet this week with an intention to provide finance exclusively for infrastructure projects. The objective is to attract further investments and lend around Rs 5 lakh crore over the next 3 years. This bill is expected to benefit infrastructure projects with long gestation periods as the funding will ensure that they are not left dry due to any financial constraints. The progress augurs well for our economy wherein infrastructure development is the heart of a virtuous economic cycle. Therefore, hopefully, a strong financial-backing in the form of DFI will be able to stimulate further growth.

Technical Outlook

Nifty50 index closed on a negative note after witnessing selling pressure throughout the week. The index broke its range of 14,450 to 15,350 but if this break down sustains in the week ahead then only markets can go lower. Otherwise, if markets stabilise at the current levels then Nifty can regain its consolidation within the said range. But any decisive break from these levels can take the index further down to 14,000 in the short term. Traders should keep appropriate stop losses while taking positions as markets are currently standing at critical levels.

Expectations for the Week

Rising COVID-19 cases  is again at the top of an investor’s mind as any adverse development can impact supply chains and sales of corporate houses. Furthermore, bond yield movement should also be on one’s radar as it will be a key variable that can dictate future equity movement. There are still some more IPOs in the pipeline which can cloud markets for liquidity. Investors are advised to keep sufficient liquidity which can help to take advantage in case of any healthy correction. Nifty50 closed the week at 14744, down by 1.91%.

(The writer is Head of Equity Research at Samco Securities. Views expressed are personal)