Market Outlook

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Market last week

Market hit a new high coupled by strong liquidity & likelihood of US-China trade deal, short covering added fuel to the rally. Possibility of US-China trade deal by next month lifted the sentiments across the globe. Further, market has largely priced-in the weak domestic macros and domestic corporate earnings has bottomed out. Steps like stimulus, tax cut, recapitalisation of PSU banks, rate cuts and improvement in banking liquidity will support growth in the future. Renewed focus on divestments can tide over government’s fiscal deficit. Global risk has reduced, easy liquidity across the globe and declining interest rates has turned FIIs positive since October.  The key outperformers in this rally were Banks & financials especially PSU banks as IBC process has strengthened and there is a gradual decline in the NPA issues. Metals & Pharma was gaining momentum on account of value buying and settling USFDA issues. Selling pressure in Asian markets on account risk of retaliation from China and profit booking ahead of release of domestic Q2GDP data, led market to end on a weak not

Week ahead

In the last one -two years, the key indices outperformed the broader market due to performance of quality blue-chips, which were safe bet given weak macro environment. Currently Nifty 50 is trading at one year forward P/E of 19x & 26x on 12 month trailing basis which does not provide much room to perform well. Given this scenario we may see limited upside in the key indices while investors will start focusing on quality mid & small caps. For the week ahead, November Auto sales and RBI policy meet next week will influence the market. Main indices performance will be tepid. Given current weak growth environment, RBI is expected cut rate by 25bps.

Posted: December 2, 2019.

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