India Markets 06-Apr-2020: Worst May Not Be Over!

Key points for the week (India Markets):


  • Coronavirus pandemic is ruling all the global markets, taking the world into recession that is likely to last for a while

  • After a little bear market rally in the preceding week, #NIFTY drifted sideways during the week

  • NIFTY closed the week lower, signaling further move downwards is possible

  • Global agencies (Fitch, Moody’s) cut India’s growth forecast for 2020-21 below 3%

  • Long term buyers are optimistic thinking it could be lifetime opportunity now, but caution must be observed as we may not have hit the bottom yet


Right now, Coronavirus pandemic is ruling everything – financial markets, commodities, and economies. As the infections are rising exponentially in USA and Europe, there is no immediate end visible to this problem. The hospitals are running way over capacity, death toll is rising exponentially. The lockdown in most of the countries has reduced economic activities to insignificance.



In the previous week NIFTY had recovered from 7500 to 9000 before closing at 8660, thus posting a weekly gain of about 14%. This was a typical bear market rally triggered by speculators booking profits after a big breakdown.


In the week ending 3rd April, NIFTY mostly drifted sideways, keeping itself within the range of preceding week. On Friday it broke below the prior three days range to close a little lower. This price action, while underpinning weakness in the market, does not necessarily suggest that a major breakdown is expected during the week.


WEEKLY PRICE CHART FOR NIFTY 50 INDEX


During the previous week NIFTY hit a four year low on 24th March 2020 at 7511. This point was within whiskers of the significant demand area from February 2016 that we had identified. The rally that followed during previous week, however, did not continue and is showing weakness. This is better elaborated on a daily chart.



DAILY PRICE CHART FOR NIFTY 50 INDEX


Though weak, NIFTY was drifting sideways rather than suggesting explosive move downwards. The price action was mostly rangebound, lacking any commitment from market participants. On Friday NIFTY barely broke below the range, without follow-up momentum.


INTRADAY PRICE CHART FOR NIFTY 50 INDEX (Hourly)


INDIA – ECONOMIC VIEW


Over past two weeks, much has happened on fundamental side. Firstly – following Rs 1.7 Tn package from the government, the Reserve Bank of India (RBI) also has reduced interest rates by 75 basis points, much more than the market expected. However, it is not clear how sufficient these measures would be, given the impact of ongoing pandemic on India is not clearly known. Secondly – the global agencies (Fitch, Moody’s) have echoed what the market already had known. The GDP growth outlook is downgraded below 3% and possibly to 2% for FY 2020-21. Indian economy will grow at a rate reminiscent of the one it had for a couple of decades after independence. Finally – the lack of movement and reduced work in Agriculture sector would create food shortage (owing to breakdown of supply network), and much of the government resources would be spent on overcoming food shortage. This is in addition to increased healthcare spending to deal with exponentially growing COVID-19 in India.


OUTLOOK AHEAD FOR INDIA MARKETS


From the recent price action, it appears that the market has absorbed all the news that is available – mainly related to economic impact of Coronavirus on banks and industry. Everything that is known or is expected – right from interest rate cuts, declined GDP growth rate, downgrade by Moody’s/Fitch or similar agencies or worldly economic organizations, concerns over potential job losses or deaths in India, reduced transportation and trade, falling energy demands and oil prices – everything is by now factored into the NIFTY, SENSEX and respective indices. The market is waiting for new information to make up its mind which direction it would want to move and how far.


Market will remain weak and may move lower or drift sideways. It is looking at the demand area at 7000 – 7200 and may get there in coming days. However, to break lower with momentum, it needs to receive further selling pressure which at this moment is not observed in the market. It could eventually happen, after impact of Coronavirus is better known. Until then, the market may continue sideways in the bigger picture, and will remain range-bound between 7000 – 8500.


For those who are looking to build long term portfolio, this may be a time to pick stronger than market stocks in very small quantities. In such market conditions, sectors such as Pharma, FMCG and Retail (related to Food / Health products) are likely to perform better than the broader market.

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