The domestic market had a rollercoaster week; it started on a negative note on account of the political crisis in Italy, but later sharply bounced back cheering good corporate numbers.The market showed divergent behaviour with the frontline stocks inching higher whereas smallcaps and midcaps got bruised badly.It was because the HDFC twins and Bajaj Finance kept the Nifty stronger than the smallcap and midcap indices.
Be that as it may, this is an indication that the market will eventually correct further before it sees any sustainable bounce, and frontline stocks will fall harder in the next round of selloff.For March quarter, India clocked fastest GDP growth in last seven quarters at 7.7 per cent.
The market has already discounted this a while ago and this shouldnt be considered as a new trigger for a bull market rally.
GDP numbers are lagging indicators, and construction and cement sectors have already registered higher core growth than the rest, which is reflected in the quarterly numbers of infrastructure companies such as KNR Constructions, Ashoka Buildcon, which have registered over 30 per cent growth rate.Whether this momentum will continue or not is all that market is interested in.
We think the momentum will slow down eventually and the sectors too will correct.Events of the Week:Shares of Avenue Supermarts showed surprise strength in spite of the promoters selling 1 per cent equity to abide by mandatory shareholding regulations.
The rise in the stock price post digestion of huge liquidity shows how strong the business model is and how investors are not worried, although valuations are in already showing triple-digit PE multiples at 125 times.
Auto sales numbers have been excellent, wherein Maruti and Bajaj Auto have reported 26 per cent and 30 per cent jump in sales, respectively, which shows that the economy is still buoyant and consumer spending is intact at the ground level.Technical Outlook:The market is in a non-trending phase, which is considered worst for traders.
On one hand, the Nifty50 is showing strength and rising, while other indices including the smallcap and midcap indices are falling and refusing to rise.Such divergence will eventually give way to a selloff in Nifty50.
Traders may buy Puts at higher levels for low-risk, low-return strategy.Expectations for the WeekThe market is likely to narrow down the gap between the frontline and smallcap and midcap stocks, which had hitherto showed divergent performance.
The room for further decline in smallcap and midcap stocks seems limited after the sharp correction that they have already witnessed since last few months.However, there is still scope for the frontline stocks to correct further.
Additionally, rate hike fears from RBIs monetary policy in the coming week are expected to keep the market under check.
There is a likelihood that interest rates would increase due to inflationary tendencies of high crude oil prices, which may translate into a higher consumer price index.
Investors should wait and watch for the right opportunity before investing.The Nifty50 closed the week 0.86 per cent higher at 10,696.