D-Street may continue winning run next week with bouts of profit booking

MUMBAI: Domestic stocks are likely to continue their winning run next week buoyed by optimism about economic recovery and strong inflows from retail as well as local institutional investors, said analysts.

However, they did not rule out the possibility of the market taking a breather as some intermittent profit booking is likely given the near 10 per cent rise in benchmarks from their recent lows.

“Nifty index rallied more than 10 per cent from the recent correction low and, hence, a mild pullback cannot be ruled out. Given that the market is rallying on a slowed down momentum, any sustained close below 15,400 should be treated as a red signal for the short term,” said Nirali Shah, head of equity research at Samco Securities.

During the week, both Nifty50 and BSE Sensex benchmarks registered intraday and closing lifetime highs, reflecting the firm risk appetite of investors, who are betting on the country’s economic recovery restarting after stalling in the April-May period due to the second wave of the pandemic.

Nifty50 rose 0.8 per cent for the week, while Sensex climbed 0.7 per cent.

Investors’ strong risk appetite was most visible in the midcap and smallcap segments, as despite a minor scare on Wednesday, the Nifty Midcap 100 and Nifty Smallcap 100 index outperformed the headline gauges for the week. The Nifty Midcap 100 and Nifty Smallcap 100 indices ended the week 3 per cent higher each.

Another sign that investors are leaving their Covid blues behind and are focusing on rapid economic growth ahead is the 11 per cent decline in the fear index, India VIX, to 14.10 this week — its lowest since February 2020.

“The market has also taken their strength from the March 2021 earnings season and subsequent management commentaries so far, that depict reasonable resilience of earnings to commodity inflation and better preparedness to manage the inevitable impact due to the second wave,” said Taher Badshah, chief investment officer–equities at Invesco Mutual Fund, in a recent note.

While investors’ appetite for riskier sectors such as the metals, energy and infrastructure spaces was steadfast, curiously, it was the defensive sectors that led Dalal Street in terms of returns. Out of the top five sectoral indices on NSE, three were defensive in nature.

No surprise then that the Nifty IT index emerged the biggest sectoral winner of the week with a gain of 4.5 per cent, followed by Nifty Media (3.5 per cent) and Nifty Pharma (2.6 per cent).

Next week, investors’ focus will largely be dominated by economic data as the country reports official data on retail and wholesale inflation in May. A persistently higher print may put more pressure on the RBI’s Monetary Policy Committee to start thinking about talking about policy normalisation.

On the global front, investors will keenly look out for data on industrial production and retail sales from the US and China on June 15 and June 16, respectively, which may set the tone for word equities for the remainder of the week.