Nifty back above 15,000. Where are the pockets of opportunities?

Market Outlook

The Nifty closed at 15,108.10 on Tuesday, crossing 15,000 for the first time since March 12. In the two months since, it had broken below its 50-day Simple Moving Average of around 14,740 on 18 March, but found support at 14,151 recorded on April 22 from where it bounced back.

The S&P BSE Sensex too closed above 50,000 for the first time since April 1.

Experts said that the recent rally in benchmark indices was being driven by a drop in COVID-19 cases and expectations of a revival in the domestic economy.

The Nifty’s “rise can be attributed to a decline in India’s COVID cases and stability in the global markets,” Ajit Mishra, VP – Research, Religare Broking Ltd told Moneycontrol.

Various studies such as this one devised by IIT scientists highlighted that the second wave of the pandemic could peak between May 11-15 and decline steeply by the end of the month.

The daily rise in domestic COVID-19 cases stayed below 300,000 lakh for the second straight day on Tuesday fuelling hopes that India could have hit the peak.

The rate of decline in Covid cases and the pace of vaccination would decide the trajectory of the markets as these would determine when lockdowns would be lifted and to what extent. States which have locked down to contain the pandemic account for about 90 percent of India’s GDP, and Moneycontrol’s economic recovery tracker shows a sharp decline in economic activity.

Still, most economists expect the economy to rebound sharply in the second half of the year once the second wave ebbs. Thus, the focus of market participants has already shifted to the sectors which will benefit from the withdrawal of restrictions and subsequent revival in the domestic economy.

“Banking and auto have witnessed decent traction in the last two sessions after underperforming for nearly a month or two. Sectors which were struggling for the last couple of months have started seeing a rebound in response to the recent dip in the COVID cases in India,” said Mishra.

The banking and auto sectoral indices gained over 1 percent and 3 percent respectively on Tuesday. Nifty Bank fell 1.6 percent while the Nifty Auto index was down by 2.2 percent in April – underperforming the  Nifty which ended the month flat.

Mishra further added that the Indian Meteorological Department’s forecast of a normal monsoon is now fuelling the rebound in the auto pack. A normal monsoon typically drives up incomes in rural areas, a big consumption pocket for two-wheelers.

“Improving trend showing moderation in daily new Covid cases and reduction in the active case has boosted sentiments pushing the market at the higher end of the broad trading range for past few weeks,” said Gaurav Dua, Senior Vice President and Head – Capital Market Strategy at Sharekhan by BNP Paribas.

“Consequently, the trade is shifting back to banks and financials, autos and discretionary consumer stocks away from defensives like pharma, FMCG and IT services.”

Where is Nifty headed?

As long as Nifty50 holds above 15000 which will be the next big support for the index, bulls should be able to push the index towards 15200-15300 levels. Investors are likely to buy into any dips towards 15000-14900.

The Mid & Smallcap indices touched fresh highs even though the Nifty is still 2 percent away from its peak of 15,430 recorded in February 2021.

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities said that a close above 15100 on Tuesday is a definite positive for the market.

“We may see consolidation between the levels of 15000 and 15200, however, in the near term, the markets have set the targets of 15450 and 15600. Keep a final stop loss at 14850 for initiating any long trade on the index. One should focus on capital goods, infrastructure, and commodity-related stocks,” he said.

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