Indian equity markets bounced back this week with both Nifty50 and Sensex up 1.2% and 1.3% to close at 11,464 and 38,855, respectively.
The broader market, however, remained weak with Nifty Midcap100 and Nifty Smallcap100 down 0.9% and 0.5%, respectively. Energy and IT were the biggest gainers, up more than 3% while Metals, Bank and Financials witnessed selling pressure. RIL reinforced its position as the country’s most valuable company, by becoming the first Indian company to hit $200 billion market capitalisation.
Institutional activities were subdued with FIIs net sellers of just Rs 9 crore while DIIs remained net sellers for the tenth straight week to the tune of Rs 1,500 crore.
The global cues were weak following a sharp fall in US technology stocks, doubts over additional monetary stimulus, and adverse news-flows of Covid-19 vaccine trials. There were reports that the AstraZeneca Pharma has halted the testing of its coronavirus vaccine after a volunteer developed an illness.
Domestic markets were under pressure at the start of the week due to rising border tensions and weak global cues. It, however, recouped its losses later, led by a strong rally in RIL after the company secured Rs 7,500 crore investment in its retail business from US-based PE firm Silver Lake.
Buying further propelled post the news that RIL has offered a $20 billion stake in its retail business to Amazon. Thus, after raising more than Rs 1.5 lakh crore through stake sale in Jio Platforms, RIL’s focus has now shifted on its retail business.
Further, India and China agreed on a five-point roadmap including quick disengagement of troops and avoiding any action that could escalate tensions, which further provided support to the market.
Going ahead, the market is likely to consolidate in the near term with positive bias as the global cues have turned weak and even FIIs have turned sellers. Even the Nifty valuation at 21x 1-year forward P/E does not look as lucrative as it was a few months back.
Mid-cap/Small-cap companies have been relative outperformers in CY20 and the momentum may continue in the near term especially after the SEBI mandated Multicap Funds to invest 25 % each in small and mid and large-cap.
Thus any weakness in the market should be looked at as a buying opportunity to add quality stocks in the portfolio as the overall long term market trend remains positive. Next week, investors would track Fed monetary policy meet along with developments over India-China border issues, news flows around Covid-19 vaccine trials, and global cues.
(The writer is the Head of Retail Research at MOFSL)