CEO, Samco Securities & StockNote
The founder & CEO of SAMCO Securities, StockNote and the Indian Trading League Company, Modi believes that price is the most important factor in investing. He is credited with developing the AIRM (TM), an approach to screening stocks and businesses in a scientific manner. His role model is Warren Buffett.

F&O rollovers in top stocks show complacency; that's no good news

Nifty50 formed a red weekly candle after rallying for six weeks consecutively. The index is overbought in the short-term and may witness a profit-booking move amid weakness in heavyweights like RIL and HDFC Bank.

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While market participants expected a washout quarter, stock prices initially saw a bit of selling pressure, but later bounced back higher.
During the week gone by, Mr Market lost its upward momentum and it looks like distribution has set in motion.

The market is at extremely overbought levels and the optimism, too, seems to be at elevated levels. Rollover data in frontline stocks suggests complacency has crept in and majority of the long positions have been carried forward to the next series. Such extremely high optimism may lead to short-term corrections.

Rossari Biotech is a case in point, wherein market participants bagged euphoric listing gains, but within a week, the fire power got exhausted. This throws light on what lies ahead for the general market.


Life Insurance Corporation of India (LIC), whose public offer is expected to be the largest ever in the history of the domestic capital market, is now a reality, which may take away precious liquidity from the market by Diwali 2020. A lot of other IPOs, too, are lined up for the next 2-3 months, a trend that historically signals capping of upside potential for the broader market.

The FMCG basket reported bleak quarterly numbers, but this surprised Dalal Street, as expectation was that demand for essentials during the lockdown should have not have been impacted. But it did. Therefore, heavyweights like HUL and Nestle corrected after their earnings. Market participants have always considered the FMCG sector to be a defensive play, unaffected by any economic slowdown, but that’s not always the case.

While market participants expected a washout quarter, stock prices initially saw a bit of selling pressure, but later bounced back higher. For instance, IndiGo moved sharply higher after posting massive losses. Hence, traders are advised to corroborate their views with the market’s consensus sentiment before jumping the gun.
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Event of the Week
POTUS Trump issued four orders, restricting the pricing power of generic pharmaceutical companies. Initially, these orders did not go down well with stock prices seeing a bit of correction. But very soon, the entire pharma pack bounced back, and it now seems to be ready for a rally after a short consolidation over the next 2-3 months. It can very be well construed that when bad news cannot take stock prices lower, nothing else can! Therefore, the pharma space looks resilient and has a higher chance of inching higher in the short to medium term. Q1FY21 earnings performance, too, has been rosy for most of them.

Technical Outlook
Nifty50 formed a red weekly candle after rallying for six weeks consecutively. The index is overbought in the short-term and may witness a profit-booking move amid weakness in heavyweights like RIL and HDFC Bank. The trend for Bank Nifty is already weak and it has already been consolidating in a range since the last four weeks.

Selling pressure in Nifty50 at higher levels and weakness in Bank Nifty are likely to drag the benchmark indices lower. We maintain a bearish outlook going ahead and believe a retest of the 10,600 level is a possibility within a couple of weeks.
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Nifty snip 7

Expectations for the Week
It is RBI’s turn to console and mend the economy, post US Federal Reserve’s status quo on interest rates and a repeat of the pledge to use its ‘full range of tools’ to support the US economy. It is now up to RBI to further lubricate the economy either by a decent rate cut or policy initiatives.
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Their stance on moratorium or one-time restructuring (Covid-19) will set the tone for the entire financial sectors in the weeks ahead. In general, Bank Nifty has underperformed and pessimism continues to run high. Therefore, any move by RBI will create short-term volatility in banking stocks. YES Bank’s capital raising was not lauded by the market as expected, and hence, it can be concluded that the capital-hungry sectors will remain under pressure going ahead.

Investors are advised to remain cautious and book profits partly. They should wait for a sharp correction before making any fresh bets.

Gold is likely to continue its march to higher levels and risk-taking investors can look to allocate fresh monies at current levels for their long-term portfolio.

Nifty50 closed the week at 11,073, down 1.1 per cent.
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