After a strong run, equity markets worldwide witnessed some profit-taking in the week gone by. The resurgence of cases in the US and the Fed’s commentary on banks’ capital levels and uncertainty over economic recovery impacted sentiments. Despite weak global cues, the Indian markets continued to march upwards but remained highly volatile throughout the week. The markets chose to ignore the rising number of cases in India (15-17k cases per day), IMF revision of India’s growth outlook to contraction by 4.5% in 2020 and rebound of 6% in 2021. Nonetheless, Nifty and Sensex ended higher by 1.3% and 1.4%.
Sector-wise, except Realty, all the other indices ended higher wherein Capital Goods, FMCG, IT were the star performers. Even broader markets outperformed as both midcap and smallcap indices yielded returns of 3-3.5% this week. On the fund flow front, FIIs were net buyers to the tune of Rs. 550 cr whereas DIIs sold stocks worth Rs. 1,300 cr.
There are signs of this liquidity-driven fatiguing at around these levels and the markets could go into consolidation mode until there are sustainable signs of economic recovery. There is enough negative news in the system with the resurgence of cases in the US, pandemic worsening in key emerging markets like India, Brazil, South Africa and Mexico and unclear demand scenario as many experts feel that the recent pick up is on account of pent up demand.
Back home, India is likely to follow global peers as on hand demand has shown signs of recovery plus monsoon continue to remain above normal (21.8% above normal as on June 26) but on the other hand COVID – 19 cases continues to rise. The earnings season is almost done as most of the large and mid prominent names have announced their results.
The earnings were largely below estimates as businesses were impacted in the last 10 days of March due to lockdown, however, commentary from management turned more optimistic from companies that announced their results little later as more clarity emerged with respect to lockdown. Going forward, the auto sales numbers, PMI – manufacturing and CPI data would provide more clarity on the demand scenario in India. Further, India – China tensions would also be one of the important factors to watch out for market participants.