Polarisation under way on Dalal Street; tread with caution!

The Indian equity market experienced a tug of war between the bulls and the bears this week, with the benchmark indices largely swaying sideways even as investors continued to remain guarded. This cautiousness isn’t distinctly visible, especially in the Nifty50 index, which has turned so polarised that only a handful of stocks are participating in the rally in a concentrated manner.

The largest 10 stocks in Nifty200 have outperformed the other 190 by 7-8% this month. But while the larger stocks are still in an upward momentum, the broader indices have been experiencing a correction. The number of stocks that were trading above their 50 DMA has dropped from close to 100% in June to just about 45% now. The cautiousness seen in the secondary market seeped into the primary market as well, and this has resulted in a series of tepid listings after a stupendous IPO season.

But a shakeout in smallcap and midcap stocks since the beginning of August has led to some cleansing of the froth, which finally helped to keep the market buoyant this week.


The question doing the rounds since the past couple of weeks is ‘are the markets at the top of their cycle?’ The fact that people have turned weary and the broader indices have reacted accordingly imply that there are no indications of a top as of now.

Historically, tops are formed around extreme market exuberance, but that excitement has fizzled out over the past few weeks. Hence, a top would be a very strong word to use at this point in time, as the rally isn’t over yet, although corrections on the way up can never be ruled out.

What we have witnessed is not the ‘beginning of a crash’ but a ‘healthy correction in a bigger bull market’. Thus, this is an opportunistic time for investors to buy quality stocks on dips. Given that the market is creating new highs every week, this is definitely not the last of greens that we expect to see.

Event of the week
The Finance Minister has unveiled a massive Rs 6 lakh crore National Monetisation Pipeline, which will look to unlock value in brownfield projects for infrastructure creation across the country. While this plan can be beneficial for the entire economy’s progress and looks promising on paper, it could be riddled with speed-breakers such as lack of revenue streams from certain assets, regulatory and taxation concerns and lacklustre bids for PPP initiatives, which hint at resistance among private investors.

Thus, the real outcome of this plan would be visible only when some material steps are taken towards implementation, which would require significant preparation on the ground and administrative readiness. Investors should not jump into the bandwagon immediately.

Technical Outlook

Nifty50 closed on a positive note for the week, but continued to trade within the previous week’s candle range. On the daily timeframe charts, it has been making a series of Spinning Top and Hanging Man candlestick patterns, which are signs of indecisiveness. A mild dip towards short-term averages can be expected, but the major bullish trend will remain intact as long as Nifty trades above the 16,250 level. Any break below the key support at the 16,360 level will signal weakness in the short term.

Expectations for the week

Indian bourses are expected to face whipsaws post Fed’s Jackson Hole meeting outcome. Market participants are eager to understand the timelines for gradual tapering of bond purchases to judge the mood on the Street. Also, the market could be influenced by an eventful economic calendar, starting with the quarterly GDP growth numbers followed by auto sales numbers and manufacturing PMI data in the coming week. Investors may see profit booking in some overvalued stocks, but it would also throw up opportunity to invest in high quality stocks in a phased manner.

Nifty50 closed the week at 16,705, up 1.55%.