Markets to remain in a consolidation mode

Indian equity markets ended this week with losses, following weak global markets. Though the week started with strong momentum on the back of surprise recovery in US employment rate in May, it gave up all the gains towards the end.

Investor sentiments got hit after the US Fed’s grim growth outlook and fear of resurgence of coronavirus infections that could stunt the pace of recovery from lockdowns. On the domestic front, market mood was dampened by mounting COVID-19 cases and no immediate relief provided by Supreme Court on AGR dues.

Read: Global cues, coronavirus trend to be major drivers for markets this week: Analysts

For the week, both Nifty50 and Sensex were down 1.7%/1.5% respectively to close at 9,973/33,781 respectively. Nifty Midcap100/ Smallcap100 also fell 1.3%/0.7% respectively. All the sectors ended in red with Media (-7.3%) and Metals (-4.1%) being the biggest losers. All the other sectors were down in the range of 1-2%. Real Estate was the only sector to end with gains of 1.3%. FIIs were net sellers to the tune of Rs 1,730 crore while DIIs sold equities worth Rs 445 crore.

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Global sentiments were negative after the US Federal Reserve indicated that the US economy will shrink 6.5% in 2020 and the unemployment rate will be 9.3% at year’s end. It also pointed that the recovery would be a long road and that policy would have to be proactive with rates near zero out to 2022.

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Further, there is renewed fears of coronavirus resurgence as US states gradually reopen their economies after a nearly countrywide shutdown. COVID-19 cases have jumped in several US states in recent days, surpassing 20 lakh, thus raising concern that the authorities have loosened restrictions too early. India has now become the fourth most infected country with number of case reaching almost 3 lakh, and the number of daily cases crossing the 10,000-mark.

Also Read: World markets stutter before Fed decision

Going ahead, we expect the markets to remain volatile and in a consolidation mode for sometime, as it would be driven by global cues, development around coronavirus cases and vaccines. Even valuations look a little stretched, thus markets may take a pause till some clarity emerges over whether the economy is on the recovery mode or not. Hence, ‘Buying on Decline’ would be a better strategy over the next few weeks.

Technically, 9,500 would act as a strong support for the Nifty and we may see an up move towards 10,200 zone. Thus, traders are advised to look for buying opportunities on dips.

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