The Nifty lost around 4.8% last week on account of global sell off led by devaluation of Yuan by China for the 3rd time in the last five months. Investor sentiment dampened across the globe and oil slid to a 11 years low. With negligible activity on the domestic front, participants reacted to global cues and the Nifty broke its initial support of 7700 and inched towards 7550 on Thursday to end the week at 7601. The Global situation remains feeble with problems in China getting deeper which is reflected in the recent currency action taken by the country. Some of the prominent large cap stocks hit 52 week lows in this week.
This week, Q3 FY16 results will start coming out and stocks will react to the outcome of the same. With flattish to low single digit growth in earnings expected for the December quarter, the index will remain range bound going ahead. Also macro numbers on inflation and IIP will give some direction on domestic economic health.
The Nifty is trading with downside bias and volatility will remain high. We might see some short covering in coming week, but the upside seems limited from current levels. . We prefer Midcap and Smallcap over the index majors for short term trades, considering the possibility of consolidation in index. Counters from FMCG, NBFCs and auto should be tracked for fresh buying while under-performance may continue in PSU banking and realty space. Investors should buy quality companies to build their portfolio.
President, Retail Distribution, Religare Securities.
“It was a tough week for the global markets as fears of slowdown (Caixin services PMI indicated a contraction) in China and the subsequent move to fix the midpoint of currency trading at a lower level led to a sharp sell-off in Chinese markets. The selling spread on to global markets as well. The sell-off on Thursday was swift to the extent that it triggered a shutdown of the Chinese market in the first fifteen minutes itself. With reports that Chinese Yuan is overvalued versus the USD, there is apprehension that further devaluation may not be ruled out. With the onset of the earnings season, markets would be focused on individual results.”
VP, Private Client Group Research, Kotak Securities.