Indian Markets May Witness Liquidity Shifting To IPO Segment

The unabated bull run in the equities in the secondary market is expected to take a breather in the short to medium term. The main reason for the temporary halt could be scores of Initial Public Offerings (IPOs) lined up in the primary market in the coming months. Along with the private sector companies, several Public Sector Undertakings (PSUs) are expected to enter the primary market with their Offer For Sale (OFS) in the fourth quarter of the Financial Year (FY) ending in March 2021. There is an expectation of liquidity being transferred from the secondary to the primary market.

Nirali Shah, senior research analyst, Samco Securities said, “Retail investors are advised to optimally use these IPO sunny times and wait for a correction in the secondary market before investing in equities”.

The week that was….

The Benchmark Nifty 50 gained 254 points or 1.85 percent every week. It closed the week at 13,513.90 points. CPSE, PSU Banks and FMCG related stocks helped the market to close into new territory. PSU Banks and small and mid-cap stocks outperformed the market. While Auto index breaks five weeks winning streak and closes into negative territory.

In the second half of the week, the market turned unstable due to weakness in global markets due to the slowdown in the global trend. Global markets were engaged with news of the delay in the US stimulus package, European Central Bank (ECB)’s support measures, and developments in Brexit deal talks.

With the signs of stabilising the situation on the corona virus front, fears of a second wave receding quickly, and Britain becoming the first country to start the mass vaccination drive, there is a hope of crude oil demand coming back to normal. This has resulted in crude oil prices rising in the international market on the back of speculative buying. This is a cause of concern for the domestic market. Crude prices surged to $50 plus levels that could be negative for emerging markets if it moves further upward.

The pouring of liquidity by Foreign Portfolio Investors (FPIs) continued even during the last week. They have bought ₹ 22,500 crores to date in the current month and out of that they have invested nearly ₹ 12,000 crores during the last week. “This is huge and would support the market on dips”, opined Shrikant Chouhan, Executive Vice President, (Equity Technical Research), Kotak Securities.

Availability of cheap credit and excess liquidity from the developed economies are all making their way into metals and other commodities including crude oil, at the moment. This may stoke retail inflation in the domestic economy, which is already hovering in the range of 7-9 per cent.

FPIs across the globe are seen attracted towards emerging economies on a weakening dollar vis-à-vis other currencies of emerging markets. The weakness in the dollar and sub-optimal interest rates prevailing in developed economies has forced global investors to move away from the relatively safe US assets and invest in non-US assets of emerging countries. This shift in asset allocation is based on the optimism that a vaccine would drive higher growth in such countries.

Their optimism has found basis in India’s smart recovery in the second quarter GDP numbers. After contracting by 24 per cent in the first quarter FY21, India’s economy displayed signs of faster recovery when it contracted by only 7.9 per cent during the second quarter (Q2). This has resulted in hopes rising that it may post minor positive growth numbers in the second half of the year.

Market technicals

Daily, the Nifty has formed a long-legged Doji formation, which is an indication of the indecisive nature of the market. The level of 13,400 acted as a crucial level for the market as Nifty bounced back sharply after hitting the same in the last two sessions of the previous week. In the near future, 13,400 and 13,600 would be the trading range for the Nifty. On the dismissal of 13,400, Nifty could fall to 13,200 levels, where it could take the support of 20 days SMA. On the higher side, 13600 and 13750 would be major hurdles, explained Chouhan.

Indian markets have been outperforming their emerging markets, peers. Though there is extreme optimism on the street. In this backdrop, Shah had a word of caution for investors.

She said, “Sooner or later this outperformance may take a back seat and we suggest traders trade with caution as a profit-booking move across the equity class cannot be ruled out amid this extreme optimism. Support and resistance in the short term are now placed at 13,250 and 13,700.”

Events of the week

The next week would be important as the meeting of the Federal Open Markets Committee (FOMC) of the Federal Reserve, the US is scheduled. As the US Fed has already hinted at keeping interest rates at sub-zero levels to aid the ailing economy, its outcome will be keenly watched. Further, any significant breakthrough in the long-awaited stimulus deal will weigh on the US economy.

Vinod Nair, Head of Research, Geojit Financial Services said, “In the coming week, domestic markets will be waiting for major data points like inflation and import-export updates. Although an improvement in November inflation levels compared to the previous month is expected, it will still be at elevated levels. The trend in global markets will be guided by developments in Brexit deal talks over the weekend and updates on the expected US stimulus package”.

The momentum of the market is very strong and sectoral rotation activity is still clearly visible that would attract buying in the market at major supports. “On the higher side, take a contra-call of trading short on the Nifty with a stop loss at 13800. Technology and Financial stocks should be in the focus list”, Chouhan concluded.

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