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Stock Market: 2021 will be an earnings catch-up year for markets! But, be careful…

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During the week gone by and over the past nine months, Mr Market has been rising relentlessly, climbing the wall of worry and reflecting upon the ground-level economy punctured by the Covid pandemic, reduced consumer demand, job losses, business model disruptions and bankruptcies.

In spite of all these, the market has kept the spirit high and climbed higher, giving some signals on what lies ahead. It is expected that Calendar 2021 would obliterate all the negative rhetoric around mounting worries and the ground-level economy may return to normalcy.

But the stock market may not show the same kind of buoyancy, as stocks have already run ahead of their fundamentals. Therefore, Year 2021 may be a period where one would see the stock market and real economy align with each other.

The year is likely to see a good start, at least in the first few months, wherein the Union budget, US government’s new policy initiatives and the Covid vaccine drive would be the key driving factors, keeping sentiments elevated and the markets bullish.

Primary markets, too, are expected to remain hyperactive during this period. Investors are advised to primarily stick to quality names rather than opting for second-rung stocks merely because of lower valuations or catch-up rally.

Event of the week

The week ended with the successful debut of Antony Waste Handling Cell, which zoomed 36.5 per cent over its issue price of Rs 315 apiece upon listing. Such positive response to listing would definitely pull in more business houses to consider IPOs in the market, and more issuers would be excited to line up IPOs for Q1 of CY21.

The long-awaited lineup of IPOs would largely benefit the overall economy, which would provide risk capital to equip entrepreneurs and businesses to drive real economic growth. However, one in the short run, this IPO rush would suck away liquidity from the secondary market and mellow down the power of the bulls.

Technical outlook

Nifty50 closed yet another week on a positive note hitting a new lifetime high and almost all the sectoral indices contributed positively to the gains. PSU Bank and Realty indices remained top gainers. The market continues to trend higher, as the bulls are not ready to loosen their grip on the market in the short term. Similarly, the US and other emerging markets are rising on the back of high liquidity globally.

Agencies

However, a couple of days back, Nifty formed Gravestone Doji and Spinning Top patterns in signs of indecisiveness in the short term. The low point of the Doji pattern at 13,860 can be the immediate support and any break below the same can be taken as a cautionary sign for mild profit booking, as the market is sitting on heavy gains. Until then, traders are advised to maintain a bullish bias.

Expectation for the week

Mr Market is expected to take cues from the US, where the political transition will see its final leg of drama and drive short-term market movement. Quarterly earnings will keep the market buzzing, with the results of the IT pack hitting the market first with some good performance.

However, it would be pertinent to note that such a good performance has largely been discounted by the market. One may note that as the earnings season now under way, the market is likely to dance to the tune of budget expectations rather than India Inc’s quarterly earnings performance. Investors would benefit by accumulating quality businesses in IT, real estate and cyclical sectors.

Nifty50 closed the week at 14,018, up 1.96 per cent. SAMCO family wishes you a very Happy New Year!

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