Index bulls could continue run, pace depends on Delta

Mumbai: India's stock indices could climb to fresh peaks in the coming days but the pace of the advance could moderate if growing concerns over the spread of the Delta Covid variant dampen global investor sentiment. Charts are pointing to at least a 2% rise in the Nifty to 17,700 in the coming days based on last week’s 3.7% run up led by fresh foreign investor purchases. But market participants are watching how the rest of the world’s equities will react to fresh worries on Wall Street over the weaker-than-expected job data in the US announced after Asian trading hours on Friday. The Dow fell 0.2% on Friday.

The advantage remains in favour of index bulls as the momentum in blue chips has picked up steam in the past few sessions with Reliance Industries, Tata Consultancy Services, HUL and other heavyweights taking turns to push the Sensex and Nifty to record highs almost daily last week. The Nifty, which cruised past 17,000 last week, closed at 17,323.60 on Friday—a record.

“We believe now 17,000 will become a formidable base for the Nifty," said Navneet Daga, senior derivatives analyst, institutional equities, Yes Securities. “The index is likely to push towards 17,500 with intermediate bouts of profit booking in due course." Daga is recommending “buy on dips” to clients. Foreign investors have been net buyers in the past five sessions, with total purchases amounting to almost ₹7,300 crore. Their fresh buying was triggered by US Fed Reserve Chairman Jerome Powell’s comments at the end of August that the US central bank was likely to begin reducing its monthly bond purchases this year but was in no rush to hike interest rates.

‘Third Wave a Key Risk’
This gave a further push to investors, who were assuming an imminent taper.

The remarks came as a trigger to the stock market, which was struggling to break out of the band. Since August 1, the Nifty and Sensex have gained about 10%. Foreign portfolio investors (FPIs) have bought shares worth Rs 10,200 crore in this period.

After the weaker August US job data on Friday on account of the rise in Delta variant cases, analysts are expecting the Fed to have second thoughts about announcing the withdrawal of its liquidity programme too early.

"Softening final demand and a slowdown in employment pose a conundrum of sorts for the Fed," said Barclays in a note to clients over the weekend. "The Fed will likely want to see more data before tapering asset purchases. We push back our forecast of the start of tapering to December, from November previously."

At home, analysts are expecting domestic economic and corporate earnings growth revival in addition to continued liquidity in the US to keep the market humming.

"There are two things supporting the strong market sentiment—expectation of strong economic and earnings recovery and stable-to-modestly higher bond yields. We are seeing signs of improvement in the economy," said Sanjeev Prasad, co-head, Kotak Institutional Equities. "There is low probability of increase in interest rates and bond yields in the short term."

Experts see a third wave of Covid-19 as a key risk to the rally but are expecting accelerated vaccinations to prevent a repeat of high infection numbers in the second wave in April-May. Meanwhile, investors are also hedging against the possibility of any correction in a stretched market by shifting greater money flows toward large caps instead of mid and small caps.

Technical and derivative analysts said the threshold of 17,000 on the Nifty is likely to stay.

"On smaller timeframe charts, Nifty futures have made a retest of breakout pattern at around 17,200 levels, implying any declines toward this can be utilised to buy for upside till 17,500-17,800 levels with negation below 17,000 levels," said Gaurav Bissa, vice president, technical and derivatives, LKP Securities.