Stock market: The results season is off to a lukewarm start! Here’s how to navigate the market now

The struggle between bears and bulls also continued this week. Apart from global headwinds and falling index heavyweights, another observation of why Indian markets are not holding up is that lately FII selling is not being fully absorbed by DIIs, who were pumping funds off the back of high retail SIP streams.

So far in April, DIIs have absorbed less than 60% of FII sales. DII uptake for the last two months was close to 92%. Moreover, even between October and February, combined investment by DIIs and retail investors exceeded net sales by FIIs. Now that signs are emerging that additional retailer participation in the near term at least may not be as buoyant, it remains to be seen whether retailer participation can sustain itself.

Over the past two years, there has been a large influx of retail investors, particularly due to the rapid returns generated by equities. However, given that the market has performed poorly over the past six months, retail investors may feel less motivated to trade with the same frequency.

Even with the economy fully open, actively investing in stocks can be sidelined for many. Additionally, rising inflation is likely to reduce retail participants’ disposable income, and therefore investable funds. Additionally, with the SEBI embargo on NFOs until the end of June, additional investment beyond SIPs may be limited. So given all of this and the fact that retail investors tend to avoid losses, it will be interesting to see if they can survive an extended period of low returns.

Given the fear gauge and the volatility of the markets, there is a good chance that they will delay new investments until a silver lining appears.

Event of the week:

The start of the earnings season has failed to dampen market sentiment as most of the positives, even on the earnings front, are fully priced into current valuations. What is observed is that stock price reactions are amplified for each success or failure relative to market expectations.

Based on the IT majors that have released their results so far, the numbers aren’t as disappointing as the market has perceived them to be. Management’s commentary suggests there are more supply-side issues eating into margins and the overall outlook remains bullish as underlying demand is robust.

However, stock price movements suggest that the market is now poised to downgrade these stocks given the missing margins and rich valuations. It can also be partly attributed to the technological carnage we are seeing around the world. Considering that the outlook for the IT sector continues to be promising, investors can now turn to companies where the reward for risk has become favorable to initiate long-term investments.

Technical outlook

While the Nifty50 index ended the week on a negative note, it quickly regained most of the loss after retesting the crucial 16,800 support mid-week. Clever small and mid cap indices are outperforming benchmarks, which is a bullish sign. Although the index is now limited to a wide range of 16,800-18,100 levels, we advise to maintain a slightly bullish outlook going forward. Given that 16,800 has emerged as strong support, traders are advised to remain vigilant as a decisive break below may lead to near-term weakness.


Expectations for the week:

Quarterly company results will continue to take center stage and will be the key factor guiding the direction of the market. Also, due to the monthly expiration, the volatility will be higher. The market will also carefully watch the war situation, the evolution of Treasury yields and the dollar index. Moreover, since there has been a resurgence of Covid cases in parts of India, the rate of spread of the infection will also be monitored. Given these factors, market movements will be jerky.

Investors are therefore advised to exercise caution. Nifty closed the week at 17,171.95, down 1.74%.

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