The week gone by began on an extremely quiet note not giving any indications of the storm ahead. The first two days saw the markets fall further but make very small losses and then it regained as if hell hath no fury. It rebounded quite sharply and recovered to begin the month of March on a very positive note. BSESENSEX gained 1,134.48 points or 1.55% to close at 74,332.58 points while NIFTY gained 427.80 points or 1.93% to close at 22,552.50 points. The broader markets saw BSE100, BSE200 and BSE500 gain 2.38%, 2.56% and 2.88% respectively. BSEMIDCAP gained 3.36% while BSESMALLCAP was up 5.86%. The top sectoral gainers were metal and capital goods while the one to perform the least was the Banking sector. Our markets lost on the first two sessions and gained on three.
The Indian Rupee gained 62 paisa or 0.71% to close at Rs 86.87. Dow Jones had a very volatile week gaining on two of the five trading sessions and losing on three. It was down 1,039.19 points or 2.37% to close at 42,801.72 points.
The lows made on the BSESENSEX and NIFTY on Tuesday were at 72,633.54 points and 21,964.10 points respectively while the highs made on Friday were at 74,586.43 points and 22,633.80 points. Just goes to show the effect of the rebound on Tuesday and the extent of damage that happened when the low was made. It maybe important to also highlight that despite the sharp recovery in the week, the March series is up a mere 7.45 points after six trading sessions as the opening day of March futures on 28th of February were very weak and we saw NIFTY lose 421 points. Its also important to understand that though markets have rebounded, and the bottom made for the time being, the base is yet to be established. Readers would recall that on the downside, the band of 22,800-22,900 points acted as support on multiple occasions and when it gave way, we lost almost 900 points in next to no time. Now on the way up, this band would act as a strong resistance and would have to be pierced with news flow and tremendous buying pressure before it is surmounted. In short, a herculean task.
What led to this rally is something which should weigh on the minds of all market participants. The Dollar index has weakened from about 109-110 to about 104, signifying that global currencies are becoming stronger and the dollar weakening. This led to a sharp rise in metal stocks. Secondly, people are more confused about tariff wars taking place in the US and there appears to be no clarity on what will happen. Auto makers set up factories to make components in Mexico so that they could benefit from cheaper wages in Mexico. If they have to pay the tariffs now, the entire advantage of creating that eco-system would be lost. Sweeping statements at the time of elections were fine but reality is certainly tougher.
Further the prices cooling off in India have made many more stocks affordable and offer some value for money. A select pack from the midcap and small cap also fall in this category, but caution needs to be exercised as many stocks have gained double digit in the week gone by. One needs to shop wisely while still maintaining a bias in the large cap stocks. FPI selling has continued so far barring an isolated day here or there but could see signs of tapering off. At the same time one may also see the local institutions slowing down their purchases in the near future.
Going forward we will continue to have volatility in our markets. Expect markets to trade in a broad band with immediate resistances being in the broad zone of 22,800-22,900 on NIFTY and at 75,000-75,300 points on BSESENSEX. On the support side while the lows made on Tuesday the 4th of March would be solid support, the band around these levels in plus or minus 50 points would be a better way to look at things. Prior support would be higher at 22,250-22,300 points on NIFTY and at 73,400-73,650 on BSESENSEX.
While we seem to have recovered from the falling trend last week, to conclude that the trend has become a rising trend and markets are back to their old ways is a long way off. Results for the January-March quarter would begin to be announced in a month’s time from now. Please bear in mind that the correction witnessed was on account of valuations and if results for the upcoming quarter do not show a substantial growth in performance on revenue coupled with profitability, things could worsen.
The strategy for the week ahead would be to look at large cap and a select group of midcap and small cap stocks. Do not fall prey to stocks which may already have risen 15-20% I n the rebound.
Trade cautiously.