The markets in Dussehra spirit

Indian markets entered a spirit of the season on Monday, the day prior to Dussehra and equity markets gaining more than 2 percent amid positive global signals. The weak manufacturing data in the US increased hopes for there was a chance that Federal Reserve would slow its rate of tightening policy.

The BSE Sensex closed 2.25% higher at 58.065, and Nifty50 closed at 17,274, a gain of 2.29 percent..

IndusInd Bank, Adani Ports, Bajaj Finance, Coal India and Hero MotoCorp were the top gainers.

The 20 gauges of the sector created by BSE improved, with metal and financial services gauges climbing the highest at 3.1 percentage and 2.8 percent and 2.8%, respectively. The market breadth was up with 2,572 stocks rising compared with 874 falling.

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FPIs were shopping for equity in the amount of 1 344 million on the Tuesday of this week, preliminary figures revealed. To date they are net sellers in the amount in the amount of $22.3 billion.Read more 

“We believe that the most severe of the FPIs outflows is past us, as the steady economic growth and earnings growth will be evident through the remainder of 2022. The market will be influenced by macroeconomic variables such as the direction that the Dollar Index is heading and bond yields, the growth of inflation, the direction of inflation in the industrialized world, and trends in commodity prices,” said a strategy note from Axis Securities.

It has set the goal of 18,400 Nifty shares for March 2023. It is valued with a 20x valuation of FY24’s earnings, compared to 22x previously, suggesting an increase of 6.5 percent over current levels. “We have reduced down the Nifty multiple to account for the rising interest rate outlook. While tightening policy to tighten the stance of the government can reduce inflationary pressures, persistently rising prices for oil and commodities will continue to be a problem for the market’s ratio in the coming quarters,” the brokerage noted.

Asian and European markets soared on Tuesday, following Wall Street soared overnight, driven by the hope that the weakening US economic data will result in a change in central bank policy around the world. Nikkei 225 gained 2.9 percent, and Taiwan weighted as well as Kospi increased by more than 2 per cent for each of them on Tuesday. The decision of Britain to pull out of the controversial plan to reduce taxes on the top earners only 10 days after having announced it, helped boost the confidence of investors.

India is also the one country apart from the US in which equity valuations are extended in comparison to domestic bonds, as per CLSA. With a value of around 2 percent in the gap between India’s 10-year GSec yield, and earnings yield of the Nifty is at a level when negative equity returns are likely to result. “The Nifty’s PE is only a fraction of one standard deviation from its historical average, and at levels at which positive returns to equity are not usually expected. In the 98-99th percentile India’s value relative against EMs in addition to Asia ex-Japan is also close to records highs. A simple mean reversion may cause a massive pullback,” the brokerage warned in a recent announcement.

The cooling of commodities’ key prices and central bank’s moves on front-loading interest rates has changed the nature of the market in the past two months. Hospitals, banks, automobiles as well as discretionary consumption and domestic industrial themes are attractive in the near future over commodities and export themes, according to Axis Securities. “Local or domestic-focused themes are expected to perform better in the short term. We believe that the profit margins will shift away from commodity producers and towards commodity consumers in the coming years,” the brokerage said.

A bull candle that was long created in the chart for daily trading, with a gaps opening up. This is a sign of an upside breakout from the more significant consolidation move between 16,800 and 17,200 levels, according to analysts.

“The current trend in the short term of Nifty has increased quickly following a wider variation in the past few sessions. A sharp rise over 17,300 levels could draw Nifty toward the next important resistances of 17,600 levels and the next level of 18,000 within the short future. The immediate support level is 17,150 levels.” stated Nagaraj Shetti, Technical Research Analyst at HDFC Securities.

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