Don’t fall for short bounces, this market will correct a little more

The Nifty witnessed 58 per cent rollover while the average for the year stood at 72 per cent.Company SummaryNSEBSENTPCLoading data…

PEER COMPANIES The domestic equity market tanked midway through the week after North Korea fired a missile in the Pacific Ocean, rattling world markets. However the panic was quickly bought into by domestic and retail investors, as liquidity is aplenty in the system.

The headline GDP numbers came at 5.7 per cent for June. Such numbers are like rearview mirror; they have no utility for the market. What will be forthcoming in the coming months and quarters is what really matters to the market, and nothing else. The market is expecting a slowdown in the near term, due to GST implementation. However, the same will only be verified once the numbers are out in October.

The coup in Infosys is behind us. The new Chairman would bring all the stakeholders at par and, hopefully, find an able lieutenant to steer the company to respectable heights.

The market witnessed the year’s lowest rollover to September series, indicating that a correction is under way and would take some more time before the liftoff finally happens. The Nifty witnessed 58 per cent rollover while the average for the year stood at 72 per cent.

Some stock-specific movements will keep the hopes alive that the bull run will resume, but it will take more time to correct the excess valuations before the rally actually begins.

Events of the week

In yet another ‘operation clean up’ of PSU banks, RBI has identified 40 more targets for bankruptcy proceedings, accelerating the swachh banking drive. However, the mandate to set aside 50 per cent on such bad loan accounts by the banks would keep them in the ICU for a few more quarters, as the provisioning that was already made was up to 25-30 per cent, but now the balance provisioning needs to be provided before bankruptcy proceedings are filed. In this cleanup, private banks and NBFCs will snatch away market share from PSU banks, helping them to post faster growth.

Technical Outlook

A Hammer was formed on the weekly chart and a bull candle on the daily chart, which indicate that some more upside is left before the downward correction begins. Various indices are in divergence with the Nifty50.

For example Bank Nifty, Nifty Infra Index and Financial Services Index are all still showing weakness. This shows that the market is still in the correction zone and any rise should be used to exit long positions and new trades should be avoided unless clarity emerges that the correction is nearing an end.

All rallies should be taken with a pinch of salt before initiating long positions. At best, longs should be avoided for now.

Expectations for the week

The market is oscillating in a narrow range, neutralising the buying and selling by institutional players. FPIs sold stocks worth Rs 16,000 crore in August, whereas DIIs bought stocks worth Rs 16,200 crore. Big money is at the loggerheads, which is why the market is in a state of pause.

A clearer picture will emerge post second quarter results. Till that time, the market will remain in a narrow range, and stock-specific action will continue to drive the adrenaline of the bulls.

NTPC got a tepid response from retail investors in spite of a 5 per cent discount. This indicates that sentiments can change overnight from bullish to neutral. This incident further shows that a correction is under way. Global experts are raising concerns over alleviated risks in equities across the world.

RBI too has raised a red flag that the Indian market could be entering the bubble zone. Give all these postulates, it would be safe for investors to stay on the sidelines and wait for the correction to happen. Short bounces should not be considered as beginning of the rally.

The Nifty50 closed the week at 9,974, up 1.19 per cent.

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