This is what is driving Nifty 50, Bank Nifty to life time highs, but breather on way

Both Nifty 50 and Bank Nifty Index touched life time highs in August on the back of cooling crude oil prices and good corporate earnings. The pharma index and stocks outperformed the benchmark Nifty 50 with good margins. Beaten down quality mid- and small-cap stocks have also bounced back from their recent lows. This trend is likely to continue. Meanwhile, FII and FPI have a mixed trend and the flow is net positive for the Indian markets.

Oil price, rupee, global trade war are concerns

In the global markets, correction in crude seems to be over and the upward journey in crude has resumed with US inventory being low. Uncertainty continues to prevail with regards to supply side on the back of Iran sanctions. Rise in crude prices have taken a toll on our currency and rupee continues to depreciate against the US dollar and has made new lows. Coming to the US-China trade war, uncertainty continues to prevail. There has been on progress in conversation between US and North Korea with regards to denuclearisation as well. The trade agreement between US and Canada has also not made any significant progress.

Market to take a breather before the upmove

Deprecating rupee is good for export oriented IT and pharma companies. But India is a net importer and the impact on our current account deficit doesn’t augur well for the economy and markets. The market will go into a consolidation phase and may take a pause at the current levels before making any substantial move.

The market regulator continues to keep a watch on stocks making big moves and shift them to additional surveillance measures (ASM) category. This will dent the overall sentiment in the small-cap and mid-cap names. However, quality names where earnings are good, will continue to move up and make new highs. There are new stocks and sectors that are contributing to this new rally. It is not the same stocks that were in limelight till about two months back that continue to make new highs and lift the indices. This time it’s pharma, cement, corporate facing private and state-run banks, along with large cap IT and FMCG that are pushing the indices to new highs.

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Money will flow back from expensive NBFC and private banks to corporate facing private and large state-run banks and in some of the other PSU financials.

Anuj Shah
(The writer is head-privilege client group, Reliance Securities)

Source: DNA Money