MARKETS RISE AT THE END OF A GLOOMY WEEK

For investors who have had a gloomy few weeks, Friday was a good day as the key indices both jumped over 7% during trade. The S&P BSE Sensex jumped over 7.53% to touch its day’s high of 30,418.2 points, and the Nifty 50 rose 7.5% to touch 8,883 points.

At the end of Friday’s trade, as compared to Thursday’s close, the Sensex gained over 5.75% while the Nifty 50 gained 5.83%. Beyond the boarder benchmark indices, the S&P BSE MidCap and SmallCap also put a good show on Friday.

The MidCap index, at the day’s high of 11,823.76 points had jumped over 5.51% compared to Thursday’s close, while the SmallCap index gained 4.82% to reach its day’s high of 10,190.9 points. At the end of Friday’s trade, the MidCap index recorded a rise of over 4.18% while the SmallCap index increased over 4.03%, both compared to their Thursday close.

The benchmark indexes’ closing in the green on Friday was respite for investors after a volatile week. The Sensex, which saw its week’s high of 33,103.24 points on Monday, recorded a new 52-week low of 26,714.46 points on Thursday. Between the week’s high and low, the Sensex had lost over 19.3%.

Similarly, the Nifty 50, touched its week’s high of 9,602.2 points on Monday and a new 52-week low of 7,832.55 points on Thursday. It lost over 1,769 points in four trading days, and the gap between the week’s high and low was a negative 18.43%.

Jimeet Modi, founder & CEO, SAMCO Securities says that the market, during most part of the week, was under intense spell of fear. “It seemed like economic activities will halt giving a crushing blow to the hopes of contrarians with a few remaining bulls, doing bargain hunting which eventually vanished seeing market’s deeper cuts,” he said. However, he believes, the pressure to sell started to subside by the end of the week.

Modi also highlighted that India’s volatility index (VIX) has cooled down, indicating that the fear is receding and the markets are expected to stabilise slowly. The recent stimulus announcements of €1.7 trillion by European Union, and the US’ package of $1 trillion along with the Federal Reserve slashing interest rates next to zero are all a part of various governments’ efforts to curtail the economic impact of COVID-19. “India too shall follow soon,” says Modi. “It is expected that market will take cognisance of these measures and the moment health concerns subside, stability would come and markets will start to rally,” he says.

Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services (MOFS), believes that the Indian markets gained on hopes of an economic stimulus. On Thursday, in his national address, Prime Minister Narendra Modi announced a financial taskforce to take necessary actions to combat the COVID-19 pandemic's economic blow.

Even foreign portfolio investors (FPIs) need some optimism. During this gloomy week, between March 16 and March 20, FPIs have been net sellers in equities, to the tune of ₹24,730.15 crore ($3.33 billion). In just five trading days, the outflow account for 50% of the net equities outflow worth ₹49,506.51 crore recorded in March, so far. And, compared to ₹35,546.1 crore worth of outflow from equities in 2020, until March 20, this week’s net outflow accounts for 69.5% of the year to date amount.

The markets have witnessed steep correction due to the coronavirus impact, which in turn has made many good stocks cheaper and attractive. “The best strategy for long term investors would be to accumulate good fundamental and quality stocks gradually over the next few weeks and months,” says MOFS’ Khemka. “While it is very difficult to predict the bottom of the market, it always rewards investors in the long term who take the benefit of such sharp fall,” he adds.

He says that if Nifty 50 sustains above 8,888 levels in the coming week, the markets may see an upward move towards 9,200 and then 9,600 levels. “On the flipside, major support is now placed at 8,200 and 7,800 zone,” flags Khemka.

In the coming week, some respite for the markets could come through the regulatory measures taken by the market regulator Securities and Exchange Board of India (SEBI). These measures include capping the limit of short selling at ₹500 crore for mutual funds, FPIs, proprietary trade of brokers and investors.

Also, the market wide position limit (MWPL) will stand revised to 50% of the existing levels in the futures and options (F&O) segment, while in the cash market margin rate, for F&O stocks will be increased to a minimum 40% in phases. From March 23, 20% margin rate will be raised, followed by another 10% increases on March 26 and March 30 respectively.

SEBI also highlighted that currently, stocks in the F&O segment are subject to dynamic price bands, which are relaxed in the event of market trends in either direction. SEBI, in addition to the existing requirements, has now provided for the flexing of the dynamic price bands only after a cooling-off period of 15 minutes from the time of meeting the existing criteria specified by stock exchanges for flexing.

SAMCO Securities’ Modi believes that these are good steps to reduce excessive volatility. “There is a practical short selling cap at ₹500 crore,” says Modi. “If someone wants to speculate beyond prescribed limit, they will need to put up twice the margin which will be blocked for 3 months,” he adds.