Banking, financials may continue positive momentum

The Indian equity market extended its positive momentum for the third week in a row with both Nifty/Sensex up ~1% each to close at 12,859/43,882. The broader market outperformed with both Nifty Midcap100/Smallcap100 up +3.3%/+2.3%.

Most sectors ended in green with Auto and PSU Banks being the biggest gainers, up more than 4% each, followed by Financials, Metals, and Realty, which gained 3-4% and Private Banks which ended 2.3% higher. Media (-1%) and Pharma (-1.7%) were the only losers during the week while IT ended flat. FIIs continue to be persistent buyers since the start of November and have bought equities to the tune of Rs 46,000 crore, while DIIs were net sellers to the tune of Rs 33,000 crore for the month so far.

Global cues were mixed amidst the news that the US Treasury was ending all the emergency loan programmes, while new shutdowns were being implemented in major US cities post the sharp rise in Covid cases again.

It overshadowed the optimism over the vaccine progress where Pfizer and Moderna became the two drugmakers to announce that their Covid-19 vaccines were almost 95% effective in preventing infection. Infact, Pfizer is planning to apply for emergency US authorisation too. Even on the macro front, the US retail sales and US manufacturing activity came in weak while US jobless claims increased.

On the domestic side, Nifty hit a record high during the week, as investors bet on a faster return to economic growth following upbeat news on a Covid-19 vaccine. Even relentless FII buying provided support to the market. However, profit booking was seen in between given mixed global cues. Even losses in index heavyweight Reliance Industries kept gains in check. Autos were the biggest gainer as the companies recorded strong vehicle sales during the 32 days festive season.

Banking and Financials are likely to continue their positive momentum next week as RBI has recommended significant changes across the banking sector, ranging from a higher promoter stake over a long period of time, the entry of corporate houses into banking and permitting large non-bank lenders to convert into banks.

Going ahead, the market is likely to be volatile as sentiments oscillate between fear of rising covid cases globally and optimism over vaccine progress. Globally, California announced curfews to curtail surging coronavirus infections while in India, few regions like Delhi and Gujarat are witnessing next wave of rising cases. Investors would also closely watch out the development over the US stimulus talks where the hopes are fading. However the overall structure of the market remains positive, as the economic activity continues to improve and covid cases continue to decline domestically. Technically, Nifty has to continue to hold above 12,750 to witness an up move towards 13,000 while support exist at 12,650.

(The writer is Head – Retail Research, Motilal Oswal Financial Services Ltd.)