D-Street drums up its own beat! But divergence with global markets may not last

The bulls are currently in complete control of the domestic equity market, and the market continued to climb higher with every passing week. India added yet another feather to its cap by surpassing France, for the first time, to claim the status of sixth largest stock market in the world in terms of market capitalisation. In only 15 days of September, Nifty50 surged nearly 3% even as the world’s dominant indices like the S&P500 and Hang Seng saw dips of ~1 per cent and 4 per cent, respectively. This divergence between India and the world markets is to an extent because of various macroeconomic variables working against these well-established markets.

The rise of delta variant infections in the US is causing months of revival to stall, naturally making investors anxious. Even the buoyancy which stemmed from the moderation in month-on-month consumer inflation in the US was outweighed by fear of probable corporate tax hikes.

China, on the other hand, is experiencing a decline in retail sales and sluggish industrial production is raising concerns about secular economic recovery. The dual pressure in the form of regulatory scrutiny and probable defaults by some second largest property developers by sales are looming over the republic.

India is usually in sync with the global bourses, but not this time! The confidence in the India story remains intact because of a regulatory boost by the Centre for enhancing manufacturing capabilities in various sectors. The Make in India initiative is being further enhanced by the PLI scheme, which is driving stocks to newer heights. August CPI numbers have also provided the timely relief, allowing the market to remain charged.

But this divergent behaviour between Indian and global markets might not keep up for long; it will last only till Indian investors can continue to ride their existing positions.

Event of the Week

Nifty IT Index has been the flavour of September with an over 6% increase against a 3% rise in the benchmark index. Midcaps raced ahead of their larger peers, which helped keep the sector in the limelight after a bout of cloud and digital transformations in the sector and an explosion in job opportunities. Hiring of IT professional has been growing rapidly, indicating these companies’ growing needs for human capital due to robust order books and resilient customer pipelines.

A depreciation in the rupee has also played its part in keeping the sector adrift and driving up the momentum. A SIP approach in fundamentally sound IT stocks can be a good investment strategy now to normalise the valuations of stronger players.

Technical Outlook

Nifty50 index ended positive for the week, but formed a reversal bar in the last trading session. Similarly, Bank Nifty also posted a reversal bar after making a new high. In the short term, the market is trading overbought and may witness dips due to small profit booking going ahead. The overall positional outlook for the market remains bullish as long as Nifty doesn’t cross the 17,500 mark, because a break below the same will halt the ongoing momentum. The immediate support and resistance levels are now placed at 17,400 and 17,900, respectively.

Expectations for the Week
Investors across the world will be eyeing the FOMC meeting of the US Fed in the coming week for more clarity on the outlook for both tapering as well as interest rate hikes. While this year, Fed’s projected

tapering of bond purchases has drawn much of the attention, its take on interest rates may now nudge markets across the globe. It is, however, largely expected that the policy makers may consider new developments in inflation and the intensity of the Delta variant before implementing the tapering plans. Therefore, traders are advised to refrain from taking aggressive bets owing to the probability of unanticipated whipsaw movements.

Nifty50 closed the week at 17,585, up 1.24%.