MARKET FRICTIONS IN AN UNCERTAIN ENVIRONMENT

The second wave of Covid-19 has been picking up in India. The cases have been surging steeply adding more than two lakh cases per day since the 14th of April. Although vaccination drive has been picking up yet there are more than 18 lakh active cases, as of 18th of April, according to the Ministry of Health and Family Welfare. This time the Government has been focusing more on enhancing the production and accessibility of vaccines. There are strict measures taken in some states like Maharashtra and Uttar Pradesh to curb wide-spreading Covid cases but there has been reluctance on part of the government to impose complete lockdown as seen during the first wave. The latest approach by the government has helped in averting various damaging effects on economic activities. However, the above measures may delay the economic recovery of the first wave slow down.

The market remained in a state of confusion last week. Nifty closed almost flat, 26 points or 0.18% below Monday’s opening level. However, it ended 217 points or 1.5% below the previous week which is a bearish closing.

Bank Nifty on the other hand closed 339 points or 1% higher this week as it filled the gap generated at 30565 levels on the 29th of January (see chart). However, on weekly basis, it also followed Nifty and closed 470 points or 1.5% below the previous week’s close. ICICI Bank and Axis Bank were the top weekly gainers among Bank Nifty components gaining 2.82% and 2.8% respectively.

Among major indices, Pharma, Metals, and FMCG managed to protect previous week lows maintain a strong uptrend. Only Nifty Pharma closed above the prior week high. It gained 1.84% on a weekly closing basis due to the strength shown by Cipla, Divis Labs, Dr. Reddy, Sun Pharma, and Aurobindo Pharma. Nifty IT was a major laggard with a 3.8% loss last week. Infosys was the top loser with an 8% dip due to Q4 results and the buyback news. On the other hand, Wipro managed to gain 4.24% due to the above expectation results.

Cipla was the top weekly performer among Nifty50 stocks as it gained 6.23%, followed by Wipro, Mahindra & Mahindra, Oil, and Natural Gas Company, and DR REDDY (refer table). On the contrary, Adani Ports & SEZ was the top loser this week, losing 8.27%, followed by IndusInd Bank, Infosys, Grasim, and Bajaj Finance.

Nifty has been holding 14460 since the 26th of February. It dipped below this level twice and hit 14260, but could not close below 14460 on weekly basis. It looks like Nifty is in a consolidation phase. Wicks at the bottom of the weekly candles suggest some accumulation going on within the 14260 to 14460 zone (refer chart).

 

Due to sharp recovery in the markets from March 2020 lows, most of the stocks have shown parabolic uptrends. This has led to overstretching of these stocks beyond their intrinsic values at this point and therefore they need consolidation – either price-wise or time-wise. This generally leads to an increase in market volatility. Worrying inflationary concerns in addition to volatility are diverting some equity investors towards safe havens such as Gold to mitigate geo-economic pressure on equities. The buying pressure is evident as the yellow metal made a strong recovery of 5.44% in April from 44911 to 47353 as of 16th of April.