A week of consolidation for Nifty, after fierce rally. Is bullish bias intact?

The relief rally enables market players to feel that the correction phase has ended, but it eventually leads to an even sharper correction. Historically, when the 1999-2000 bull-run peaked, our markets rebounded by more than 30% post the initial leg of correction. 

However, investors who misinterpreted this as a continuation of the bull cycle were caught off guard when the indices sank by 45%. Amidst this drop, three strong relief rallies were witnessed. Likewise, the 2008 bear market saw two while that of 2011 saw four significant relief rallies.

Coming to the present, the worst appears to be over. The possibility of a global war has been ruled out by markets. Markets have also adjusted to Fed rate hikes, and have priced in, to some extent, the impact of the new Covid variant breaking out in China. 

Moreover, our RBI governor has eased some of the concerns by assuring that Indian inflation is transitory. As a result, while the prospects of this rally becoming a bear trap are low, markets are expected to be volatile and consolidate within a range in the short term, as the coast isn’t all clear yet. The eventual economic consequences of the Russia-Ukraine war will be understood only with time. Furthermore, the risk of the US going through a recession, as well as the possible disruption of economic activity if the new Covid variant spreads to other nations, especially India, will keep Mr. Market on edge. In light of this, investors should remain prudent and invest in long term opportunities in a staggered manner.

Event of the week

The war between Russia and Ukraine has resulted in another battle between inflation and the end customer, with price hikes across the board as India Inc. has resorted to passing on the soaring raw material prices to customers in order to address margin concerns. This week, the prices of petrol, diesel, and LPG were raised. Besides, auto OEMs, FMCG majors, steel players, airlines, and paper companies have also already raised their prices and even hinted at further hikes. These hikes will be fully reflected in the inflation print for the month of April. While RBI expects inflation to moderate in the coming months and eventually remain within its tolerance band, the April inflation figures will disclose the reality on the ground. Crude prices have climbed again this week, surpassing the $120 per barrel mark, making the situation more difficult.

Nifty Technical Outlook

Nifty 50 ended the week on a negative note after consolidating in a narrow range of 400 points, and 17,500 levels emerged as a critical resistance zone for the benchmark. While the trend this week hints that the bullish momentum is slowing, there is no evidence of bearish confirmation as of yet. The Bank Nifty index, like the benchmark, is showing relative weakness. We recommend that traders maintain a mild bullish bias for the coming week and continue to buy on dips. Traders should also keep an eye on how the market reacts to immediate support near 17,000. Any decisive break below this level can result in markets testing 16,400 levels on the downside.

Expectations of the week

Aside from the developments on the Covid outbreak in China and the war, macroeconomic data from the US, such as GDP growth rate and unemployment rate, will influence markets globally. Back home volatility would be the main course of action as the last monthly expiry of this fiscal is scheduled next week. Further, taking into consideration that the automobile companies’ monthly sales numbers are anticipated to be a mixed bag, D-Street will keep a close eye on those who miss estimates. 

With volatility high, markets are expected to remain largely range-bound and investors are advised to continue to invest in pockets with a reasonable margin of safety for the long term. Nifty 50 closed the week at 17,153, down by 0.78%.

Yesha Shah, Head of Equity Research, Samco Securities