The market is in a bear market rally triggered by squaring-off and reduction in FII selling due to positive momentum in the global market. This change in strategy is post the heavy selling in February and March which led the market to an oversold region. At the same time, some reduction was noticed in percentage of newly infected people in developed countries due to the imposition of lockdown and also in expectation of further stimulus by FED to boost the economy.
In India the lockdown period has been extended which was largely in-line with the expectation and unlikely to impact the market. The market will focus on the success rate of lockdown and relaxation of stringent measures in the future. We can expect some relaxation post 20th April that too based on the situation in the local/district area while more ease may be expected post the deadline of 3rd May provided healthy degree of improvement. The relaxation will be more for unprivileged section, daily workers and farmers. For corporates no specific benefit is expected rather than some opening-up of the economy that will provide positivity in demand of essential items, staples, healthcare and baking services. The total lockdown may be for a period of three months or more, and restriction will be relieved in a phased manner, based on the success of lockdown in the country, states and locations. In the last one week, the number of new cases in India has increased in high density areas, hotspots and has spread to new locations, which is a point of concern for the country.
Q4FY20 result period has started, the expectation for which is mixed. Few sectors have been impacted by external factors due to lockdown in China and other countries during January to March while some were impacted by internal factors like domestic lockdown and fall in demand and supply. The larger impact will be in Q1FY21 due to complete lockdown in the world, and the Q4 FY20 earnings are not going to significantly impact the market since much of it has been factored in.
Today the market momentum is heavily depended on technical factors. Nifty50 range has upgraded positively from 8,000 to 8,500 in last week to 8,500 to 9,600. This new range will continue till FIIs maintain their strategy based on global markets which are positive today due to the success of lockdown, both global and domestic, as the rate of new cases have reduced. Though the overall position is cautious due to collapse in economic activities, global markets are hopeful of more stimuli from FED to add liquidity in financial market and economy. While in India optimism is in the expectation of economic relaxation next month and a second economic package of more than Rs 1.7lac cr that was announced in March.
For retail investor this is the time to be patient, adopt the wait and watch approach and maintain their SIP investments. We are sure to overcome this “Great Lockdown” while the time will depend on government’s measures, success of lockdown, treatment and vaccination. Long-terms investors can use accumulation as a strategy during this period of lockdown. Today the market hopes that the economy will begin to improve from Q2FY21. Traders can capitalize from this bounce in the market to square-off their position as per the risk appetite. The sectors which can outperform in the current situation are staples, FMCG, Pharma and Healthcare.