Markets continue to rally amid COVID-19, rising US-China tensions; here's how D-St experts see the road ahead

Indian equity benchmarks logged gains for the sixth consecutive week with Sensex closed 3 percent higher while the Nifty50 rose 2.6 percent for the week ended July 24.

The BSE Smallcap index rose 1.4 percent in the week and the BSE Midcap index about 1.2 percent.

There are as many as 33 stocks in the S&P BSE 500 index which rose 10-30 percent. These include names like Trident, The Federal Bank, RIL, Eicher Motors, Mphasis, Granules India, AU Small Finance Bank, and VA Tech Wabag.

Better-than-expected corporate earnings, reports of potential vaccine developments and massive stimulus package announcement by EU underpinned market sentiment.

However, rising tensions between the US and China and surging COVID-19 cases in India and the US remain points of worries for the market.

Let's take a look at what experts have to say about the short-term trend of the market:

Dharmesh Shah, Head – Technical, ICICI direct

We maintain a positive stance with a target of 11,400. We expect midcap and smallcap space to catch up and outperform the benchmark in the coming weeks.

Our target of 11,400 is based on 80 percent retracement of its entire CY20 decline (12,430 – 7,511), placed at 11,445.

Nifty has rallied 18 percent in the past six weeks that hauled weekly stochastic oscillator in overbought territory (currently at 96).

Therefore, any temporary breather should not be construed as negative. Instead, it should be capitalised on to accumulate quality stocks amid the ongoing Q1 FY21 result season.

Jimeet Modi, Founder & CEO Samco Group

The rally in Nifty is being supported by positive development on the vaccine front and participation from some of the heavyweights from oil and gas and IT sectors.

However, Bank Nifty has been an all-weather partner that has seen a fall in momentum. The banking index has formed a bearish shooting star pattern but managed to close on a mildly positive note.

The divergence between Nifty and Bank Nifty is going on for the last three weeks.

We continue to maintain a cautiously bullish outlook on Nifty with immediate support and resistance placed at 11,000 and 11,240, respectively. However, a break below 10,900 may lead to short-term weakness.

As markets stroll along with the result season, they are continuously discounting surprises in results, if any, as well as the discounting commentaries from the management on the irreversible impact on businesses.

At least from a rhetoric point of view tensions are increasing every day between the US and China and India too is taking actions against Chinese business interests by overhauling internal policies to benefit domestic counterparts.

Supposedly, the entire world is virtually orchestrating policies against China by imposing sanctions, rummaging anti-dumping duty, incentivising to move out from China and so on.

It seems that global peace is nearing its all-time lows and equity too cannot prosper in such times. Investors are advised to be patient and wait for a deeper correction.

Ajit Mishra, VP Research, Religare Broking

In the coming week, scheduled derivatives expiry of July month contracts combined with the on-going earnings season would keep the volatility high.

A long list of prominent names like Kotak Mahindra Bank, Tech Mahindra, Bharti Airtel, Ultratech Cement, Dr Reddy's Labs, Maruti, HDFC, Reliance, Indian Oil Corporation and State Bank of India will announce their Q1 FY21 results during the week along with several others.

Apart from the above events, global cues and updates related to the COVID-19 will also be on the participants’ radar.

Though the benchmark is gradually inching higher with every passing week, the participation is largely limited.

Also, Nifty has now reached closer to the major hurdle of 11,350 and the oscillators are looking stretched.

At the same time, we’re closely following global indices and any correction in the US markets might derail the prevailing momentum.

We’ve seen such situations in the past as well wherein the benchmark was led by a handful of the index majors but hardly spared any stock when it declined. It becomes difficult for the participants to navigate during such conditions.

We advise preparing beforehand by limiting naked leveraged trades and keeping the existing positions hedged.

Vinod Nair, Head of Research at Geojit Financial Services

The record virus infections in India seems to have unsettled investors, with its related delay in business and earnings recovery.

Global markets are also affected on account of rising US-China tensions. Markets head into the next week with this uncertainty in mind, after a quid pro quo from the Chinese government.

Any further developments in this front will impact trade in the next week.

S Hariharan, Head - Sales Trading, Emkay Global Financial Services

Nifty closed the week with gains but the market breadth was poor. Much of this week's strength was attributable to Reliance and IT stocks.

Bank nifty is trading within a rising wedge with odds rising for a significant break-out - this weekend's earnings release from ICICI can act as the trigger for this.

Any move outside the 22,100-23,200 range in Bank Nifty would be an important technical development.

ITC and Eicher Motors are also poised close to resistance from 2-3 year downward trendlines and bear watching.

Next week's derivatives expiry comes in the backdrop of significantly improved retail sentiment, with gross long open interest in single stock futures segment up 300,000 lots, and hence, has a bullish undertone.
FIIs have invested $1 billion in the last week and the flow environment remains supportive of a strong market for the coming week.

Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel Broking

Rather than anticipating things from here on, we would let the market give us a further indication. As we step into the monthly expiry week, our eyes would be on a few crucial levels.

On the upside, 11,250 is the level to watch out for, whereas 11,050 has now become key support.

One should remain hopeful as long as we are trading above this swing low at 11,050 and expect the market to give breakout in an upward direction to extend the move towards 11,350–11,400.

However, a breach of the lower end should be treated as a short-term pause to see some decent profit-booking.

We continue to advise traders to remain light and keep booking profits wherever it's necessary.

Also, if our markets have to see an upward move, the banking space plays a vital role in this. Hence, one needs to see whether Bank Nifty manages to convincingly go beyond 23,000-23,200 or not in the forthcoming week.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.