Equity markets went in for a correction in the latter half of this week, following obtaining soared more than 11% because the Union Budget. S&P BSE Sensex erased 654 points or 1.27% and the 50-stock NSE Nifty slipped 181 points to close just under the vital 15,000 mark. Many analysts on Dalal Street had warned of such a correction and had been advising investors to stay cautious. But, exactly where do the benchmark indices move from right here? Will they resume their upward march or are the bears patiently waiting for Monday?
What’s causing the fall?
The correction has not just been restricted to Indian stock markets but has been comparable in indices across the globe. “The market was largely in a consolidation phase throughout the week following weak global cues. Bears took control of the markets across the globe as worries of increasing US Bond yield and inflation kept investors mood gloomy,” mentioned Vinod Nair, Head of Research at Geojit Financial Services.
Primarily analysts think it have been the bond yields that cooled equity markets. “A sudden rise in domestic as well as global bond yields was a prime hindrance which moderated the enthusiasm of equity market participants throughout the world. Akin to 10-year G-Sec yields which rose nearly 17bps this week, US 10-year bond yields too saw a similar rise,” mentioned Nirali Shah, Head of Equity Research, Samco Securities. “Bond yields are inversely proportional to equity returns and when bond yields decline, equity markets tend to outperform while when yields rise equity market returns tend to falter,” she added.
Charts recommend quick-term weakness
Friday’s fall in Sensex and Nifty was the fourth consecutive day of ending in the damaging territory. “A reasonable negative candle was formed with minor upper and lower shadow,” mentioned Nagaraj Shetti, Technical Research Analyst, HDFC Securities. He added that this pattern indicates a continuation of weakness amidst a variety movement or volatility. On the weekly charts as effectively, a damaging candle was formed, hinting at additional damaging implications for the market place.
Although the quick-term momentum for Sensex and Nifty has now turned damaging, analysts are nevertheless bullish for the medium term and do not see that altering if Nifty regains 15,000 and Sensex reaches 51,000. “In such a scenario, we could see 15150/15200 (51600 for Sensex) levels where the market has spent maximum time during the recent fall,” mentioned Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities. If Nifty goes under 14,900 and Sensex slips under 50,600, then the pre-spending budget resistance of 14,750 and 50,150 could be retested, according to Chouhan.
What next?
Till issues more than increasing bond yields and inflation ease, stock markets could continue to appropriate or move variety-bound. Further, a spike in coronavirus situations, in some states, has also come back to haunt stock markets.
Sensex and Nifty are most likely to continue to retain an eye on worldwide markets for cues. The coming week will also see the third-quarter GDP information be released, which could possibly infuse positivity going ahead. “The strategy should be to buy strong and heavyweight companies between 14850/50500 and 14750/50200 levels with a stop loss at 14600/49750,” Shrikant Chouhan mentioned.