By Rahul Shah
Equity benchmark Sensex surged 350 points or 0.6% to close at 60261 and Nifty advance nearly 90 points or 0.5% to close at 17957. IT and metal stocks were major gainers week. Sentiment boosted after US Inflation was reported in line with expectation at 6.5% in December of 2022, the lowest since October of 2021. On the domestic front, CPI inflation fell to a 1-year low, good quarterly results were announced by IT players, and over Rs 10000 cr DIIs net buyers lifted the market.
IT Index witnessed the biggest gains and Nifty IS Index surged by 3.5% after tech majors Infosys, TCS and HCL Tech announced strong Q3 results. Nifty metal Index advanced 2.6% last week on hope of global demand ahead of China reopening hope. This week, market will focus on quarterly results but broadly traders will be looking into two important events – Union Budget and US Fed interest rate decision. It is the first time that both Budget and Fed rate decisions will be announced on same day 1st February. Indian markets managed to end over half percent last week after fall of 1.5% previous week. However, global markets surged by 2-5% this week and soared 4-8% in the two weeks. Indian market underperformed against the global markets due to FIIs pulling out over $2bn this month (net sellers of Rs 174 bn in two weeks and Rs 96 bn this week).
Many researchers believe that the Indian market is overvalued in terms of P/E valuation. However, historically, Indian market has always been valued on higher P/E due to growth in the domestic market being much higher than the global peers. World Bank and IMF forecast Indian GDP growth between 6.5% to 7% compared to other emerging and developed nation growth forecast of 2-4%. Moreover, from economic data point of view, domestic inflation fell to 1-year low at 5.7%, IIP growth came at 5-month high and manufacturing PMI at 13-month high. From that perspective, Indian market is attractive compared to the global markets. Expect FIIs to be back in Dalal Street as the quarterly results by IT majors Infosys, HCL Tech, Wipro and TCS came in much better than expected.
Hope of good Q3 quarterly results and a favorable Union budget ahead of 9 assembly elections to be held in 2023 will be positive for the market sentiment. Global equities have advanced between 4-8% this year as investors bet price pressures would continue to ease faster than expected, allowing the Federal Reserve to further slow the pace of rate hikes. The region has been strongly outperforming the US market since the end of September, thanks to China’s reopening and cheaper equity valuations. Over the next few weeks, the market will get a sense of how the aggressive Fed policy to tame inflation has weighed on profit margins.
US corporate earnings are yet to fully reflect the impact of last year’s rate hikes. US 10- bond fell over 10% from 3.85% to 3.4%. US Dollar Index declined to 1-month low at 102. The Cboe Volatility index plunged toward 18 to hit its lowest in a year. Expect banks to remain positive on the hope of cool down in bond yield due to a fall in inflation. China reopening may positive on metals. Beaten-down IT stocks may turn positive after strong quarterly results. Nifty has formed a Doji candle on the weekly frame and witnessed a tug-of-war between the bears and bulls throughout the week. Now, it has to hold above 17950 zones for an up move towards 18081 and 18181 zones whereas supports are placed at 17850 and 17777 zones.
Stocks to buy
CMP: Rs 85 | SL: Rs 82 | Target: Rs 92
IDFC LTD has given a breakout of the pole and flag pattern on the daily scale and it has formed a bullish candle which indicates strength in the counter. RSI on the daily and weekly scale is in the bullish zone which will take the prices higher. Considering the current chart structure, we advise traders to buy the stock for an up move towards 92 with stop loss of 82.
SBI LIFE: Buy
CMP: Rs 1,313 | SL: Rs 1,295 | Target: Rs 1,350
SBI Life has retested the breakout of the consolidation and started the fresh move towards higher zones. It has formed a bullish candle on the daily scale which indicates that the trend is positive. RSI on the daily and weekly scale is in the bullish zone which will take the prices higher. Considering the current chart structure, we advise traders to buy the stock for an up move towards 1360 with stop loss of 1295.
(Rahul Shah is the Senior Vice President, Group Advisory Leader-PCG, Broking & Distribution at Motilal Oswal Financial Services. The views expressed are author’s own.)