Market likely to enter consolidation before it gains strength to hit new high

The domestic stock market danced to the tune of individual heavyweight stocks this week, which was otherwise a lacklustre period. Stocks like TCS,
HDFC Bank, Axis Bank and Reliance Industries were highly traded for stock-specific reasons.

The two sectors that stood diametrically opposite to each other, one gliding on extreme bullish sentiments as companies want to dilute stake, while on the other end sentiments are bearish as companies want to consolidate.

Hindalco and TCS are two contrasting stocks representing their respective sectors, sending out a clear message to investors where to invest. Hindalco wants to do a QIP to raise Rs 3,500 crore, which means the management thinks the stock is richly valued and it is worth selling shares to institutional buyers.

TCS thinks there is value in the current share price and it is worth buying from the market. Thus, investors should take the cue from what managements or insiders think about their own companies. Generally, such cues have proved right.

Events of the week: Reliance Jio unleashed a competitive war by disclosing the tariff for the first time since its launch. The pricing is predatory and will force incumbents to either match or face the heat of losing customers.

Rarely has the Indian market seen such high-profile corporate wars to gain control over the marketplace. In the end, consumers will win.

Technical Outlook: The market is standing at a critical juncture with a double top and triple top on a larger time frame. However, the underlying momentum suggests it is only a matter of time before all the tops are taken off. Before that happens, historically it is observed that the market goes into consolidation or a corrective phase to gain strength and move higher.

The sprint of the past eight weeks looks dangerous for short-term trades from a risk-reward point of view. Traders should keep low profile and enter the market when it conclusively breaks above 9,000 on the Nifty50 or when it corrects meaningfully.



Expectations for the week: The market is in the process of pulling up all the laggards as there is little room for the leaders to move higher. This typically happens in a maturing bull market, at least in the intermediate term.

Stocks from aviation sector, which were written off, are making a comeback. Stocks like Just Dial and Jubilant Foodworks, which are considered by market analysts as secular short stories, are roaring again, and for that matter, even Reliance Industries rose sharply just after Jio tariff pronouncement.

All the stocks that have underperformed are gaining momentum. Such a trend is expected to continue till the market decisively breaks to a new high. From there on, the race to pick up quality stocks will begin again.

The undercurrent of the market is strong and investors should aggressively allocate funds to only IT and pharma sectors and hold on to the rest.

The Nifty50 closed the week 1.34 per cent higher at 8,939.

(The author is CEO, SAMCO Securities. Views and recommendations expressed in this section are his own and do not represent those of EconomicTimes.com. Please consult your financial advisor before taking any position.)