Equity markets worldwide witnessed sharp sell-off this week as the second wave of cases in Europe and weak economic data in the US spooked investor sentiments. The rising cases in European countries (France, Netherlands, UK, Spain) has prompted the governments to impose harsher restrictions thereby impacting the economic activity. The rise in jobless claims, slower than expected recovery in demand indicators and lack of clarity on the stimulus package in the US did no good either for the markets. However, the bulls tried to make a comeback towards the latter half of the week as news reports suggested that the Democrats are preparing a new 2.4 trillion-dollar package with focus on unemployment aid and direct payments.
The Indian markets followed global suit and witnessed a sharp sell-off this week. The monthly derivative expiry and lack of momentum in Banking stocks were the primary reasons behind the fall. After a sharp run-up recently and last week, IT and Pharma pack witnessed profit taking and failed to support the markets as both the indices ended in the red. There were some encouraging developments as well this week with signs of easing border tensions between India and China, Farmers Bill getting passed in the upper house, and news reports of the government announcing a stimulus package ahead of the festive season. Nonetheless, both the Nifty and Sensex ended with losses of 4% and 3.8%. The selling pressure was witnessed across the board as all equity indices ended with losses. On the fund flow front, the FIIs sold stocks worth Rs. 10,500 cr whereas DIIs were net buyers to the tune of Rs. 4,250 cr.
The coming week promises to be an action-packed but a truncated one as a number of events unfolds. Globally, the developments on the progress of the stimulus package would dictate the trend for the markets. Further, investors would keep a close eye on the cases in Europe and government actions on the same as more lockdowns would deter economic recovery and dent market sentiments. Apart from that, key economic data from the US and Europe would also help investors in assessing economic recovery.
Back home, the Supreme Court hearing on September 28th on interest waiver would provide some clarity for banking stocks which have remained subdued recently. Further, economic indicators like Auto numbers and PMI Manufacturing and Services would be actively tracked. Meanwhile, it would be important to see how markets position itself before the earnings season begins from mid-September.
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