Market momentum likely to continue

Indian equity markets ended the last week of 2020 in style by closing at record levels. Nifty continued its positive momentum of the last few weeks and surpassed the psychological 14,000 mark.

Nifty gained 269 points (+2.0%) to close at 14,019, Sensex was up 895 points (+1.9%) to close 47,869 – yet another record closing high. With this, the Sensex posted its ninth straight week of gains, its longest streak since April 2010. Action was witnessed in the broader market which significantly outperformed with Nifty Midcap / Smallcap100 up +3.0%/+3.9%. All the sectors closed in green, with High beta sectors in focus as PSU Banks (+6.2%), Realty (+5.7%), Metals (+3.6%) and Auto (+3.3%) were the major gainers. Nifty Bank (+2.7%), IT (+1.9%), Media (+1.3%) were some of the other gainers for the week. FIIs continued their buying spree for the 13th consecutive week and bought equities to the tune of Rs 7,406 crore, while DIIs were net sellers to the tune of Rs 4,174 crore.

Global cues were positive as investors look forward to an economic recovery in 2021 after one of the most tumultuous years in memory for equities. A combination of more federal aid and continuing vaccinations has helped the S&P 500 to finish the year with a gain of about 16%. On the Domestic front, Nifty gained 15% in 2020, the best since 2017. Stocks have rebounded sharply after giving up about a third of their value in March when global markets tanked on pandemic fears.

The strong comeback was on the back of sustained FII inflows, support provided by both the government and RBI, progress on the vaccine front, a consistent decline in Covid-19 cases, improving economic data points and rising hope for strong earnings growth in the coming year.

Technically, Nifty is forming higher lows from last seven trading sessions. Now it has to continue to hold above 13850 zones to witness a rally towards 14200- 14500 zones while on the downside, major support exists at 13700- 13750 levels. India VIX fell by 7.3% from 21.09 to 19.56 levels. Cool off in volatility below 20 zones supports the overall bullish market setup and fuels the bulls with a higher market base.

Going ahead, the market momentum seen in the last couple of months is likely to continue on the back of strong global cues, sustained inflows, and improving macros trends. GST collections for December rose to Rs 1.15 lakh crore, the highest ever since the implementation of the tax in July 2017.

The previous monthly GST collection record was just short of Rs 1.14 lakh crore in April 2019. This is the fourth consecutive month that GST collections have shown strong growth on YoY basis, a clear sign of recovery in the economy.

The December quarterly results and Union Budget around February 1 will be some of the key events for the market. The December quarterly numbers are expected to be much better due to strong festival as well as post-festive demand. As the long term market structure remains positive, we would advise investors to adopt Buying on Dips strategy to accumulate quality stocks.

(The writer is Head – Retail Research, Motilal Oswal Financial Services Ltd.)