Home Market Pessimism-infested market finally gearing up for a short-term rally

Pessimism-infested market finally gearing up for a short-term rally


After Monday’s fall, the market crawled sideways in spite of bearish sentiments running throughout media during the week. The headlines about ‘rising US bonds yield, LTCG tax implications, PNB fraud and the consequential collateral damage therefrom, low rollover to the next series, foreign investors adding bearish bets’ etc all led to fear in the market.

Around 30 per cent lower open interest in the new F&O series all but indicated that in the short term too much permission has been loaded and, therefore, it’s time for some trend reversal. FMCG, IT, pharma and real estate seem to have seen decent corrections and, therefore, offer value at the current juncture from a short-term perspective.

Events of the Week

The hard work to recover money from stressed assets by RBI and Govt is paying off, Tata Steel is likely to offer Rs 35,000 crore cash plus 12.5 per cent equity stake to lenders for acquiring Bhushan Steel.

This will entail reversing of earlier write offs by the PSU banks and therefore will straight away add to their profits. Similarly, JP Infra has received offer from JSW group for Rs 9,900 crore, which is also believed to be very aggressive. Given such developments that are yet to be discounted, PSU banks will move up sharply once they crystallise such recoveries.

Technical Outlook

Last week, we had noted that “In near term the market is expected to test the bottom from where a rebound is expected.” Market indeed tested the level of 10,300, a double level from where the liftoff happened.

The rise in the market was followed by rising volume and, therefore, it can be safely assumed that the market will rest at 10,630 on the higher side. Buy on dips should be the strategy for traders. Shorts, if any, should be exited.

Expectation from the Week

Enough of negative publicity in the PNB fraud has percolated down on the street. The same is, therefore, extensively discounted and behind us. Considering the size and scale of the Indian banking system PNB event can’t stop the country’s growth prospects per se. This will soon be forgotten and market will move ahead as some value has emerged for short term buyers.

Market saw battering of stocks across the board, irrespective of good or bad quarterly numbers. Now, the market will recognize such companies with appropriate price action jump. Private sector banks had been unnecessarily punished behind PSU banks rout but will now offer good buying opportunity.

One needs to keep an eye on US markets which is expected to stabilize in the near term but the longer term trend is still under pressure. Nifty50 closed the week at 10,491, marginally up by 1.04 per cent.

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