The market movement in India indicates that the second wave of Covid-19 is gradually going to be a matter of past. The market is getting strength from new factors like demand revival, projected good monsoon, resumption buying by FPIs and positive global cues in the medium to slightly longer term. However, rich valuation may attract some intermittent profit-booking in its longer upward journey.

In this backdrop, the benchmark indices closed the week in green for the third time in a row.

The Nifty and the Sensex, after scaling a new closing high on June 3 at 15,690 and 52,232 respectively, gained in excess of 1.5 per cent during the week to close at 15,670 and 52,100 respectively.

The broader market continued to outperform the benchmark indices even during past week. Nifty Mid-Cap 100 Index gained 3.2 per cent and the Nifty Small Cap 100 Index gained 2.5 per cent during the week. Among the sectoral indices, BSE Realty, BSE Oil & Gas and BSE Metals have seen gains of 6.5 per cent, 5.4 per cent and 3.4 per cent, respectively this week.

Another encouraging development during the week was that the foreign portfolio investors (FPIs) which were net sellers in the month of April and May, have turned net buyer in June till date. They have brought to the tune of Rs 1,550 crore as markets started pricing in normalisation of business conditions amid gradual dilution of restrictions on activities by various state governments, as daily new Covid-19 cases continue to remain low. The MSCI Emerging Markets Index has gained 1.13% this week.

Shrikant Chouhan, Executive VP, Equity Technical Research at Kotak Securities said, “Expectation of normal monsoon, accommodative stance by RBI, decline in fresh Covid cases in India, gradual easing of lockdown restrictions and positive global cues would likely lend support to the market in the near term.”

Another feature this time of the market is controlled volatility. The Indian Volatility Index (VIX) is trading at its lowest levels of last 17 months since February 2020.

Siddhartha Khemka, Head of Retail Research, Motilal Oswal Financial Services said the falling VIX could extend the bullish market momentum towards new high territory.

Domestic markets witnessed an eventful week with regard to the release of the fourth quarter GDP, PMI data, and RBI’S MPC announcement amid increased optimism due to declining Covid cases. India’s GDP shrank by 7.3 per cent in FY21, whereas fourth quarter reported better-than-expected growth of 1.6 per cent – where agriculture, industry and service sectors showed signs of revival.

Vinod Nair, Head of Research at Geojit Financial Services, said, “Manufacturing and Industrial production data for the month of April are the key economic data points to be released next week.”

Factoring the impact of the second wave, the RBI reduced the FY22 GDP forecast from 10.5 per cent to 9.5 per cent and trimmed the inflation forecast from 5.2 per cent to 5.1 per cent. As was expected, the RBI kept its policy rates unchanged and reiterated its accommodative stance. G-Sec buying and liquidity support to MSMEs and affected sectors will help the economy revive.

A delay in the start of the monsoon season also added caution to the market. Going ahead, another factor that may prevent the market from going overboard is cues from the US markets, which remained flat last week.

After moving below 1.58 per cent last week, the yield on the benchmark 10-year US Treasury note rose to 1.63 per cent. In the US, a key inflation indicator — the core personal consumption expenditures index — rose 3.1 per cent in April, faster than expectations of a 2.9 per cent increase. Private job growth in the US for May accelerated at its fastest pace in nearly a year as companies hired 9,78,000 workers, according to a report from payroll processing firm ADP. It was a big jump from April’s 6,54,000 and the largest gain since June 2020. Also, for the week ended May 29, the number of Americans filing new claims for unemployment benefits fell below 4,00,000 for the first time since March 2020. According to a report released by the Institute for Supply Management, the US manufacturing activity inched up to 61.2 in May from 60.7 in April.

All these data indicate faster-than-expected revival of the US economy. This means that the abundant liquidity flowing in the emerging markets may get directed towards the US and other developed markets as the Eurozone economy is also swiftly moving towards normalcy following its inoculation programme gathering momentum. According to market experts, this may prove counter-productive for emerging markets like India.

Vishal Wagh, Head of Research, Bonanza Portfolio, said, “With the US economy reviving, the US dollar may gain strength and as a result crude prices are likely to firm up. These developments may create some panic in the Indian market.”

The earning season for the fourth quarter is not over yet. Looking at the next week’s probable candidates who will declare their fourth-quarter number, most of them from the public sector, the next week’s trading is likely to be dominated by the PSU companies. PSU heavyweights, including SAIL, GAIL, BHEL, NTPC, Coal India, Bata India and DLF from the private sector among others are the prominent ones to declare their result for the fourth quarter.

Further, key developments on the disinvestment story could also keep the PSU stocks on a tricky stand. Nirali Shah, Head of Equity Research, Samco Securities, said, “Investors should therefore place trades cautiously on PSUs to buffer from any unforeseen shocks owing to divestment announcements.”

Ajit Mishra, VP Research, Religare Broking, said: “We may see a pause in the index initially, after gaining for three successive weeks but the bias would remain on the positive side. In case of any dip, the previous record high zone of 15,400 would act as a crucial support to Nifty. On the higher side, we’re eyeing the 15,800-16,000 zone,” he said.

However, it’s not going to be easy to identify the right opportunity at record highs. So maintain extra focus on that front and avoid contrarian trades, said Mishra while cautioning investors.

Moving forward, Nifty may see some sideways consolidation early next week and in the second half, it may resume an upward journey. On the lower side, Nifty will hold 15431 levels firmly on the higher side 15950 is the first target, Wagh of Bonanza Portfolio said.