Sensex dives 983 points on Day 1 of May series: Time to turn cautious or stay put?

Market Outlook

After rallying by about 4 percent in the April series, the Indian market saw heavy selling on the first day of the May series, weighed down by weak global cues, likely delays in vaccination drive and exit polls giving the edge to the Trinamool Congress in West Bengal assembly elections.

The S&P BSE Sensex plunged 983 points on April 30 to close at 48,782, while the Nifty broke below the 50-day simple moving average to close at 14,631.

The market plunged as investors preferred to book profits after several states said they didn’t have enough jabs for the 18-44 age group to begin Phase 3 of the nationwide vaccination drive that opens May 1.

Vaccine shortage comes as a devastating second coronavirus wave shows no signs of abating, with India continuously reporting a  record surge in daily infections. On April 30, India reported a record 3.8 lakh cases.

The surge in infections has forced several states to impose lockdown-like restrictions, which led to some profit-booking at higher levels.

“A persistent rise in daily caseload (crossed 3.8 lakh yesterday) and higher number of deaths continue to remain a matter of concerns for central and state governments and therefore any possibility of further economic restrictions cannot be ruled out by the state governments. The market is expected to be volatile until we see a clear reversal in COVID-19 cases,” Binod Modi, Head Strategy at Reliance Securities said.

Also read: Taking Stock: Market snaps 4-day winning streak, plunges 2%; pharma outperforms

India has approved three vaccines for emergency use. While Covishield, which is the local name for the Oxford University-AstraZeneca jab manufactured by the Serum Institute of India, and Bharat Biotech made Covaxin are in use, Russia’s Sputnik V is expected to be available in the coming weeks.

“Timely availability of jabs is still a concern for many states. Further, despite putting enhanced mobility restrictions by states, manufacturing, and infrastructure activities have not halted yet and companies appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities. Therefore, large economic damage like last year is unlikely to happen,” Modi said.

He added that any near-term possible correction in the market should be treated as an opportunity for bargain trading. Investors must focus on quality stocks with robust earnings visibility and margins of safety.

The larger trend will be on the upside as long as the Nifty is able to hold on to 14,200 and intermittent dips should be used to accumulate quality stocks, say experts.

“The rebound in the Nifty over the past few sessions has come from the high of the Union Budget Day. Recently, the Nifty also managed to break above the resistance line of Falling Wedge, which is a bullish price pattern,” Abhishek Chinchalkar of FYERS said.

“Based on the price objective of the Falling Wedge pattern, it would not be surprising to see the Nifty rising towards 15,750 in the days ahead. So, coming back to the question, the probability of a move higher seems more likely than a market decline in the short term,” he said.

The May series rollover data did drop few hints about the volatility which the Street could face. Rollovers for Nifty/Bank?Nifty stood at 66 percent (1.02 lakh shares)/65 percent (13.9 lakh shares) compared to 82 percent (98 lakh shares)/88 percent  (29  lakh shares) the previous month.

“Low rollover on the Bank Nifty was accompanied by sharp unwinding on aggregate OI base. Market-wide rolls stood at 84 percent vs 85 percent previous month, while the decline continues to six months average of around 90 percent,” Navneet Daga, Lead Derivative Analyst at YES Securities said.

“FII’s derivative stats, index futures long rolls declined in absolute terms it stood at 77% vs 3month avg. of 86% while index futures short rolls stood at 43% vs 55% on 3month avg. We expect wild swings to continue, with formidable support now emerges at the 14,200 mark,” he said.

We spoke to various experts on their outlook on markets:

“FII’s derivative stats, index futures long rolls declined in absolute terms it stood at 77 percent vs three-month average of 86 percent, while index futures short rolls stood at 43 percent vs 55 percent on three-month average. We expect wild swings to continue, with formidable support now emerging at the 14,200-mark,” he said.

We spoke to various experts on their outlook on markets:

Mohit Nigam, Head, PMS, Hem Securities

Banking and financials, which led the rally during the week, were the laggards on April 30, witnessing profit booking. The Nifty Bank ended 2.94 percent lower.

The exit polls of four states and one union territory showed the BJP not gaining a sound majority in the fiercely fought state of West Bengal denting the sentiment of the markets.

Reliance Industries numbers, to be released after market hours, on April 30 will set the tone for the next week’s opening along with developments on the COVID front. Closing below 14,650 is slightly negative for the markets.

Vinod Nair, Head of Research, Geojit Financial Services

The market turned into a correction phase following weakness in the Asian market despite hopeful signs from Wall Street. Rising COVID-19 cases and uncertainty surrounding vaccination added more pressure on the market.

Along with smallcap stocks, pharma, metal, and oil & gas were the sectoral gainers, while profit-booking was seen in banking stocks.

Ashis Biswas, Head, Technical Research, CapitalVia Global Research Limited

After a few days of a strong trend, the market witnessed a lacklustre movement on April 30. The Nifty’s likely range is expected to be 14,500-14,900. It will be crucial that the market sustains above 14,500 in the short term.

We may expect a consolidation due to short-term profit booking, primarily driven by technical factors. However, a significant selloff is not expected as of now.

The market is likely to reclaim the highs posted in February. From a risk perspective, we must keep an eye on any extended lockdown.

Chandan Taparia, Vice President | Analyst-Derivatives, Motilal Oswal Financial Services Limited

Technically, the Nifty formed a bearish candle on the daily chart but a bullish candle on the weekly frame with a long upper shadow indicates it couldn’t sustain at higher zones.

It has to cross 14,700 to witness an up move towards 14,900 and 15,050. On the downside, support exists at 14,400 and 14,250.

Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments

Support still holds at 14,400 and markets have the potential to turn from here and head towards 15,100. The risk-reward ratio is now skewed in the favour of the reward and hence a buy-on-dips approach will be most appropriate.