Profit Booking Frenzy Halts Market’s Glory Run

Market This Week

Market went on to a juggernaut run this week touching their 52-weeks highs. But the most important observation in this rally should be the trigger of the market. Looking at the recent past events, Indian economy was charging the market without any fair trigger. This concludes fresh buying of the retail investors. Analyzing FIIs and DIIs daily numbers, equation goes very simple as plus and minus maths, equating zero at the end. Hedging has been seen in the market during last week as DIIs were pulling out their investment from cash market and investing significantly in index and stock futures and options.

Movers & Shakers

In the beginning of the year no one had uttered about such a strong rally, but the market surprised everyone with a very strong rally. Going by the pattern, correction can be expected anytime. A bit of a consolidation is likely. Since the Budget presentation, it has been a one way journey, and maybe you can take a bit of a break here and then eye for a reset of the rally later. NBFCs are doing their own bit, so, NBFCs have become very large in the last few years. PSU banks of course have their own challenges on the asset quality. It will be good to see if they can sort out their asset quality issue quicker than later, if they wish to see that change. We think there is value in that space though we dont see immediate resolution happening there. Dont forget that in the last decade or so, the financial services industry in India has deepened quite massively.

Key Market Drivers

We are getting closer to both the goods and services tax (GST) implementation date and earnings season, which most likely, will be the next trigger in the market. Naturally, there is another event in between which is the election results of the five state elections and that might either be a bit of a dampener or could even be a trigger for rally. But in the interim, profit booking is expected to set in a bit. However, that might not bring about big, sharp decline from here.

Event Watch

When you look at last decade's private bank network rollout almost all of them have expanded their footprint between 5x and 8x, or in some cases as big as even 10x. All of these guys have also been hungry for other fee based income. So, a lot of these guys will see the push of the macro favouring investors to get into either equity or insurance. So, we think you combine the financial savings improvement in the system, you combine the diminishing rate of interest in the system, add to it the footprint of all these banks which have expanded so enormously in last many years, you clearly see that a steady flow of money coming into the equity market.

Stocks to Watch

Kwality Ltd is on up side while Idea Cellular Ltd is on down side.