Peaking Inflation Best News Ever for Equity Investors

Peaking Inflation Best News Ever for Equity Investors

The equity markets have been having a dream run this week. BSE Sensex is up by almost 1.3 per cent in the past one week. Since the recent bottom made in mid-June this year, the markets have recovered by about 16 per cent. This phenomenal recovery, although an unexpected one given the headwinds, has taken most investors by surprise. It is quite possible that many investors have been caught on the wrong foot in this rally. The current setup looks promising with participation seen across sectors and market capitalisation. This participation in the market is likely to get wider if the uptrend continues going forward.

The participation of FIIs has been a key highlight in recent weeks with continuous buying seen in sectors like FMCG, financials and realty stocks. FIIs have been reducing stakes in IT and metal stocks recently. With three in every four Nifty 50 stocks trading over 200 days’ SMA, the overall trend in the market is bullish as of now. This week we have seen some extraordinary performances from small-cap and SME stocks. From the SME pack we have seen shares such as Gensol Engineering, Kotyark Industries and Inflame Appliances making lifetime highs for themselves. From the small-cap space we have seen quality names such as Raj Ratan Global Wires, Tube Investments, JK Papers, Mirza International and CG Power make fresh 52-week highs.

The outperformance of some basic material stocks like TGV SRAAC, Sree Rayalaseema and Grindwell Norton was the highlight during this week. From the large-cap space, we have seen the Adani Group stocks continue the positive trend from the previous week. Adani Enterprises and Adani Power, in particular, are witnessing a tremendous bull run supported by good volumes. Hindustan Aeronautics and ICICI Bank made fresh 52-week highs in Thursday’s trading session, thus indicating positive momentum. With several stocks attempting fresh highs and the breadth improving, it is easy to get carried away in such a market environment.

The focus clearly is on financials as momentum gathers pace in the sector. Investors should avoid taking any leveraged bets even as the global equity market sentiment improves. India VIX cooling off by about 6 per cent during Thursday’s trading session could impart some confidence to the bulls. However, cautious optimism is the key to success in this market. This week we have seen Nifty break key resistance of 17,500 with ease and 17,800 is clearly on the cards. For the next week momentum traders and investors will have to keep a close eye on the 17,500 levels in Nifty, which shall act as immediate support and 17,716 levels for resistance.

As financials are in focus, Bank Nifty will be in the limelight as well. The key support levels for Bank Nifty are 38,400 and the strong resistance in the coming five trading sessions will be 39,400. The momentum was slightly in favor of the large-caps in Thursday’s trading session but the broader markets may throw a surprise party in the coming week. It is the expectation of inflation peaking out that is creating a wave of bullishness in the equity markets. Keep an eye on what is happening in the US market to better understand the market sentiment!