Sensex, Nifty just 2% shy of erasing year-to-date losses; will stock market hold gains next week?

Stock markets continued their range-bound action this week but managed inch higher during the last five trading sessions. The S&P BSE Sensex moved 0.61% higher while the 50-stock NSE Nifty gained 0.80%. With this domestic equity indices are now just 2% away from erasing all their year-to-date losses and turn positive, helped by strong foreign fund flows and the re-opening of the Indian economy, which boosted certain sectors in hope of revival. However, the question now remains, with no mega stimulus package in the offing, how long will stock markets manage to hold on?

Where’s the market headed?

Analysts believe that stock markets might still manage to stay afloat in the coming week, eyeing a stimulus package in the United States and helped by the better-than-expected results that India Inc. has so far posted. “Going ahead, Mr. Market is expected to continue its upbeat mood as indices are oscillating around their all time highs. India Inc. with its quarterly performance has managed to keep the markets afloat and on lack of any negative news, indices are likely to inch higher,” said Nirali Shah, Senior Research Analyst, Samco Securities.

Foreign Institutional Investors too have helped in fuelling the rise of domestic markets. FIIs, during the last five trading sessions have poured in Rs 7,375.72 crore into domestic equities. So far this month, investment by FII into equity and debt has reached over Rs 17,500 crore.

Time for rotation

However, with sectors like IT and Pharmaceuticals having surged more than the benchmarks profit-booking is not being ruled out. In a recent note analysts at CLSA said that going forward in the second half of this fiscal year, investors should consider sector rotation. “Empirical data from the past 10 years shows a tendency of 60% of the performance leaders of the first nine months becoming underperformers in the last quarter of the calendar year and laggards becoming outperformers,” CLSA said while recommending a shift towards banking and cement stocks.

What do the charts say?

Technically, on the weekly charts, Nifty  formed a small positive candle with upper and lower shadow, which is similar to a high wave type pattern. “This candle pattern was formed beside the negative candle of the previous week. The upper area of 12025 has been acting as a key overhead resistance in the last couple of weeks and this hurdle could be tested again in the coming week,” said Nagaraj Shetti, Technical Research Analyst, HDFC Securities. He believes that a sustainable upside breakout of this hurdle could have a sharp positive impact on the market ahead.

Chartists are advising a ‘buy on dips’ strategy as of now. Sameet Chavan , Chief Analyst -Technical and Derivatives, Angel Broking says that 11,650-11,600 is a strong as well as crucial support zonel, however, a close below this zone could result in a short-term trend reversal. “Before this, intermediate supports are at 11820 – 11775. Now, we are tad below 12000 and if we have to pre-empt any direction, we expect the Nifty to surpass 12000 – 12050 levels in coming days to head towards 12200 – 12400,” he added.