Volatility May Continue During Results Season

The domestic stock market in May 2-7 period, continued their positive showing and one round of crossborder tension was completed on Wednesday. Under ‘Operation Sindoor,’ which was the code name for the operation, India carried out strikes on terrorist infrastructure and camps and demolished them with pinpoint accuracy using missiles on the intervening night of May 6 (wee hours of May 7). The joint forces were veryclear that they have not left their soil and no asset was deployed in enemy territory. Since the incident there has been poor response from across the border and probably for the time beinground one is over. More interestingly, the incident removed a big uncertainty from the markets viewpoint as to how India would retaliate to the Pahalgam tragedy.

Markets gained on three of the four trading sessions and lost on one. BSE Sensex gained 504.54 points or 0.63 per cent to close at 80,746.78 points, while Nifty gained 80.20 points or 0.33 per cent to close at 74,414.40 points. Dow Jones gained on three of the five trading sessions and lost on two. It gained 301.38 points or 0.74 per cent to close at 40,829.00 points.

US President Donald Trump is now talking of being close to many countries being ready to sign a trade treaty with their country. Further the US Fed has its Chairman Jerome Powell addressing media after its two-day meeting. While rates are expected to remain steady, the importance is how Powell reacts to the standoff, which had happened with Trump when he had threatened to sack Powell, before withdrawing the statement.

After having crossed levels of 24,500 points on Nifty thrice in succession between Friday and Tuesday, markets have been finding in tough to retain these levels. Wednesday was a totally different day and markets after the initial opening setback were rangebound between 100 points on Nifty. On Wednesday, Nifty closed with gains of 35 points and 105 points on BSE Sensex.

India has concluded its trade agreement with UK and is expected to also do so in the next 10-15 dayswith US. While these would remove uncertainties on trade, which companies and sectors wouldbenefit would have to be ascertained. By and large suffice to say that India would get a fair share aswe do not have systems of very large subsidies for domestic manufacturers in any sector. Further, over the last few years we have moved to a system of ‘PLI’ production linked incentive which doesnot give the luxury of deep-discounting but only encourages higher production.

In the May 8-13 period ahead, expect markets to continue to remain volatile. Results season is on and one is seeing that the expected growth and improvement in performance of companies is missing from the bulk of results. While some have had decent numbers, their number is in minority, while the bulk of results are flat to mildly negative. Yes, on the positive side we have not seen disastrous results as yet so far.

Key levels to watch out for would be 24,500 on Nifty, which would act as a pivot and the highs made on Friday act as immediate resistances. Thereafter the next levelwould be 24,800-24,850 on Nifty and 82,000-82,200 on BSE Sensex respectively. On the supportside levels made on the previous Friday (April 25) at 78,605 and 23,847 would act as strong supports. On a broader note, the trading range until violated on either side would be between 24,000 and 24,500 on Nifty.

While one big uncertainty in the form of cross border tension is over, it has been crossed with tradeagreement with UK. The real gainers from this trade deal would be known in some time as detailed analysis is done and companies short listed.

The strategy would be to continue to look at large caps and only a select few from the midcap and Small-cap space. The fact that FPIs continue to remain positive and have been net buyers is helping sentiment. Keep overnight trading positions on the lighter side unless they are properly hedged and weekend positions should be avoided. Investment bets should be encouraged in view of trade talks, which would happen sooner than later. Trade cautiously.

(The author is the founder of Kejriwal Research and Investment Services,

an advisory firm)