market outlook: Intraday volumes drying up fast, Nifty up for some consolidation

The domestic equity indices continued their journey to new highs during the week gone by, albeit with lower volumes in the derivative segment. Compared with last year’s June, open interest is more or less same, but volumes in the derivative segment are down almost 30-40%.

This indicates that intraday volumes have dried up, either due to peak margin requirements or lack of retail participants’ confidence at the current market levels. This is the reason Nifty50 couldn’t sustain at the 15,800 level after touching that mark.

Overall, the market remained range-bound with an upward bias. May GST collections showed a drop at Rs 102,709 crore. This dip in the collections was attributable mainly to the big hit on business activities owing to localised lockdowns.

Despite the drop, GST collections were still up 65% on a YoY basis and continued to be above the psychologically important Rs 1 lakh crore mark for the eighth month in a row. Better-than-expected GDP data, positive IIP performance and GST collections above Rs 1 lakh crore mark, all indicate that the economy is exhibiting necessary resilience despite the second wave of Covid-19, which is further boosting the overall market sentiment.

With the improvement in various economic data, equity mutual funds continued to see net inflows for the third consecutive month in May at Rs 10,083 crore, marking a 14-month high. This was driven primarily by the trend of retail investors moving from do-it-yourself investing to favour professionally-managed funds for their long-term investing needs.

The government in its economic review report stated that frontloading of fiscal measures would be essential to revive consumption and investment in the coming quarters. It also said the economic fallout of the second wave of Covid-19 may be restricted to just the June quarter of FY21.

In order to jumpstart the growth engine of India Inc and prioritize sustained recovery in demand-led growth, the government with its full firepower has increased capex by 66.5% YoY in April and managed to soften the impact on manufacturing and construction activity from Covid disruption. With numerous indicators signalling a solid ground for economic recovery, the market is likely to sustain the bull market in the medium term with near-term hiccups.

Event of the Week

The world’s most important commodity market was the centre of attention during the week. Traders on the New York Mercantile Exchange picked up Call options tied to Brent and WTI crude oil, betting it to reach $100 by December 2022. This comes at a time when oil prices have already surged nearly 41% this year in just over a year after the pandemic crushed energy demand, pushing WTI crude prices below zero. It appears that international traders are betting on higher volatility, more than speculation, in oil prices at higher levels. Signs of exuberance are visible in the oil market, and hence, it would be wise to book profits in oil stocks. Warren Buffett, too, has recently sold a good part of US oil giant Chevron Corp.

Technical Outlook

Nifty50 closed the week on a positive note, touching a new all-time high. The index now seems to be finding the new range on the higher side as the dip up to 15,560 level on Wednesday got bought into quickly. Nifty rallied more than 10% from the low of the recent correction, and hence, a mild pullback cannot be ruled out.

The market is rallying on a slowed-down momentum, as evident from the negative divergence on the RSI on the daily timeframe chart. Any sustained close below the 15,400 level should be treated as red signal for the short term. As long as the benchmark index trades above the 15,400 level, we would traders to maintain a bullish bias on the market.

Expectation for the Week

The coming week could be a volatile one for Dalal Street on the US Federal Reserve’s commentary, which has hinted at keeping interest rates near sub-zero levels in order to maintain the liquidity in the economy. Any development on the same would be awaited keenly. At current juncture, chances of an increase in interest rates and tapering appear to be low with the US 10-year Treasury yield already hovering near the bottom of its recent range.

Meanwhile back home, the primary market is expected to see a surge in activity with two IPOs set to hit the market this week. The secondary market will keenly focus on the final process of the government’s bid to privatise some PSUs. Long-term investors are advised to continue with their investments in marquee names in a staggered manner. Nifty50 closed the week at 15,799, up 0.82 per cent.