The market was relatively flat during the week gone by and it looked like Nifty exhaust its upward move and could be ready for a downward drift soon.
Generally, the market takes support of an external event to begin a correction. However, there is a stark divergence in the smallcap and frontline indices. In the last 10 days, the smallcap and midcap indices have refused to go up along with Nifty50, which means the fall is coming soon. Investors are, therefore, advised to remain cautious and take decisions wisely only after considering all the fundamental and qualitative factors about companies. They can also consider booking profits at this juncture.
Currently, the Nifty500 and S&P500 indices share the same anatomy, which is rare but important for us to understand the way forward, as India does have the history of mirroring the US market. The Trump-Xi trade war, conviction of his two key men, a rising dollar and the possibility of further Fed rate hike do not augur well for global financial markets. These issues have made investors wary and they are looking for right avenues to park their money and place fresh bets. This pause-like feeling in the market will soon end and it will begin a downward journey.
Events of the week
There was news that BG Asia Pacific Holding has reduced its stake in MGL by a whopping 14 per cent. This might be a good opportunity to accumulate this secular business for the long term, as BG Asia may have other compulsions to sell. On the other hand, when insiders such as the experienced Tatas themselves increase stake in their own company, it can be assumed that the worst is over for Tata Motors. Tata Sons increased its stake in the company by acquiring shares worth Rs 2.61 crore from the open market recently, which might again be a good opportunity.
Although both promoter actions were contrasting, investors must assess each event separately. But both offer opportunity to accumulate shares.
Broader market barometer Nifty500 index has made a double top, indicating that the odds of a fall from here on are far higher than that of a rise. Even the US markets benchmark S&P500 index reflected the same anatomy of double top, which indicated that more often than not the market would be heading downwards.
In case a failure occurs on the upside, this would further confirm the probability of a fall in the indices. Once the fall begins, it will be across the board. Traders are advised to keep a trailing stop loss for positional trades at 11,300 on the Nifty50. Short-term traders can keep a trailing stop loss at 11,450 and not initiate fresh long positions at these levels.
Expectations for the Week
At present, the market is in a state of confusion, hesitant to move in one distinct pre-set direction. Credit Access Grameens poor opening indicates that market is weak. However, such situations arise often and get resolved quickly, with the market marking its direction. We expect the market to remain under pressure in the broader sense, as the internal strength weakens as evident from the huge divergence between smallcap and midcap shares and their largecap peers. On the sectoral front, private banks look weak and could be shorted.
Similarly, realty and metals also seem ready for a downward drift. It is advisable to book profits from a short-term perspective. Nifty closed the week 0.75 per cent higher at 11,557.