Nifty outlook: Why you should not be euphoric about Nifty hitting new lifetime highs

The domestic equity market saw a stellar run on Friday and reclaimed lifetime highs. And rightly so, the fear gauge, INDIA VIX, is at 17 from levels of 86 back when Covid hit India last year. A lot has changed in the past year: 2020 was the Year of the Unknown with there uncertainty around Covid transmission rate, possibility of vaccine, impact on the economy etc., but this time there is more understanding of the situation.

The start of 2021 was all about technology and PSU growth. Then it transitioned to Special Purpose Acquisition Companies (SPAC), then it moved to Bitcoin and commodities and now we are witnessing some amount of cooling. India Inc undertook a number of cost-cutting measures last year, but now the scene has taken a U-turn. There have been spikes in raw material costs, packaging costs, higher fuel and freight costs, whose impact will be felt in the numbers going ahead. However, pent-up demand post the current lockdown should balance out margins going forward.

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India attracted over $80 billion in FDI in the past year, which was the highest ever, and the coming months could also continue to see inflows if the Fed and central banks continue to inject liquidity into the system. In all likelihood, this could be a year which will fully manifest all of these measures undertaken by both financial and non-financial institutions to contain the pandemic.

Just as the Industrial Revolution, the years going forward could see a Digital Revolution. The theme that has attracted the most traction in the past year is technology and digitisation. Be it supply chains, robo advisory, e-commerce sales,

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, digitisation has been implemented in all aspects of life. But this is just the beginning and automation is the way of the future and companies undergoing such structural changes should be ideal secular bets for the long term.

Although Nifty will experience hiccups on the way up, but the longer bull rally is here to stay as the digital, infrastructure, consumption, real estate boom continues to pick up pace. A sustenance of this boom will drive Indian markets from a $3 trillion m-cap to the next level in line with the developed nations such as China, who has a $11.4 trillion market-cap and the US with $47 trillion m-cap. The secular story is intact, but in the near term, the excesses in valuation need to get corrected for a healthy next legup.

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Event of the Week
Fuel prices, especially those of petrol, breached the all-important Rs 100/litre mark. This follows a 14-day streak as OMCs kept on revising fuel prices upwards across India. The hikes are mostly in line with the gradual rise in global oil prices as Brent Crude touched $70 a barrel. Support from US economy and employment data diffused concerns around the impact of the rise in Iranian oil supply, which had earlier prevented oil prices from moving upwards.

Overall global bullishness and demand are keeping oil prices at current levels. But investors need to be cautious as the Opec meeting slated for June 1 will dictate the supply, production and price indications going ahead.

Technical Outlook
Nifty50 crossed lifetime highs and closed the week on a positive note. However, this week’s bounce was slow and lacked strength. It is likely the benchmark index could face resistance at higher levels. The bulls are getting tired as the index is trading much higher than its mean levels. Hence, a brief corrective dip cannot be ruled out. The 15,160 level is the immediate support for the index.


Expectations for the Week
Inflation continues to be on everyone’s radar and it will be interesting to witness the impact of the opening of states on the economy. True picture of the damage by the second wave will only be visible in the Q1 results, but until then management commentaries will continue to guide the Street. Pushing benchmark indices still higher into the unknown will certainly be a reality, but there can be hurdles on the way up as there are no concrete triggers in place yet and markets might look for a stronger reason before showing aggression in volumes. Therefore, investors should seek selective bets, and wait for corrective moves before investing for the long term. Nifty50 closed the week at 15,435, up 1.7 per cent.

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