A week of consolidation for Nifty, after a fierce rally. Is the bullish bias intact?

This week, the markets remained largely undecided, consolidating their range-bound. Prior to this week, our benchmarks were able to recover quickly from recent losses. Although there seems to be a bullish bias at the moment, the bigger concern is whether this rally is sustainable? Typically, when a bullish rally ends, the first leg of the correction is usually followed by a quick recovery, commonly referred to as a “relief rally”.

The relief rally makes market participants feel that the correction phase is over, but it ultimately leads to an even sharper correction. Historically, when the bull run of 1999-2000 peaked, our markets rebounded more than 30% after the first stage of correction.

However, investors who interpreted this as a continuation of the bull cycle were caught off guard when the indices fell 45%. Amid this decline, three strong relief rallies were observed. Similarly, the 2008 bear market saw two while the 2011 bear market saw four significant relief rallies.

Coming to the present, the worst seems to be over. The possibility of a world war has been ruled out by the markets. Markets also adjusted to Fed rate hikes and priced in, to some degree, the impact of the novel Covid variant breaking out in China.

Moreover, our RBI Governor has allayed some of the concerns by assuring that Indian inflation is transitory. Therefore, while the outlook for this rally to become a bear trap is low, markets are likely to be volatile and consolidate in a short-term range as the coast is not yet clear. The possible economic consequences of the Russian-Ukrainian war will only be understood over time. Additionally, the risk of the US going through a recession, as well as the possible disruption to economic activity if the new Covid variant spreads to other countries, particularly India, will keep Mr. Market on the hook. nerves. In light of this, investors should remain cautious and invest in long-term opportunities in a laddered manner.

Event of the week

The war between Russia and Ukraine led to a new battle between inflation and the end customer, with widespread price hikes, as India Inc. resorted to passing on the commodity price spikes to customers. to address margin issues. This week, gasoline, diesel and LPG prices were raised. In addition, automotive OEMs, FMCG majors, steel players, airlines and paper companies have also already hiked prices and even hinted at further hikes. These increases will be fully reflected in the inflation printout for the month of April. While RBI expects inflation to moderate in the coming months and eventually stay within its tolerance range, the April inflation figures will reveal the reality on the ground. Crude prices have climbed further this week, surpassing the $120 per barrel mark, making the situation more difficult.

Clever technical insights

Nifty 50 ended the week on a negative note after consolidating in a narrow 400-point range, and 17,500 levels emerged as a critical resistance zone for the benchmark. While this week’s trend hints that the bullish momentum is slowing, there is no evidence of bearish confirmation yet. The Bank Nifty Index, like the benchmark, is showing relative weakness. We recommend traders to maintain a slight bullish bias for the week ahead and continue buying on dips. Traders should also keep an eye on how the market reacts to immediate support near 17,000. Any decisive break below this level may cause markets to test 16,400 levels on the downside.

Expectations of the week

In addition to developments on the Covid epidemic in China and the war, macroeconomic data from the United States, such as the GDP growth rate and the unemployment rate, will influence markets globally. At-home volatility would be the main guideline, as the last monthly expiry for this fiscal year is scheduled for next week. Also, given that automakers’ monthly sales numbers are expected to be mixed, D-Street will be keeping a close eye on those who miss the estimates.

With volatility high, markets are likely to remain largely confined and investors are advised to continue investing in pockets with a reasonable long-term margin of safety. Nifty 50 closed the week at 17,153, down 0.78%.

Yesha Shah, Head of Equity Research, Samco Securities

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