Markets May See Profit Booking Next Week

Markets had their best monthly run in April, 2020 since 2009, with the Sensex and the Nifty seeing a sharp surge in the last week of April.

For the week, the BSE Sensex gained as much as 7.6 percent, while the Nifty gained almost 7.7 per cent.

Almost all of the heavyweights including the likes of HDFC, HDFC Bank and Reliance Industries saw heavy buying support.

Markets may see some profit booking

Monday is likely to begin on a weak note, as the SGX Nifty dropped by almost 637 points on Friday, when the Indian markets were closed. The US Markets also closed sharply lower on Friday, which means that on Monday the markets are almost certainly going to open weak.

Rising Covid-19 cases a worry

What is also happening is that the Covid 19 cases in India are now beginning to see a bigger traction and we are seeing almost 2,000 cases being added daily. Covid 19 infection cases are near the 40,000 mark and have risen sharply in the last 1 week.

It is likely that this too may dampen investor sentiments. The lockdown has now been extended for another 14 days and infections are likely to be closely monitored.

Corporate results have not too great

Corporate results have not been too great. In fact, one would have to watch for results reactions in heavyweight stocks like Reliance Industries and Hindustan Unilever (HUL). Both companies disappointed with their results, with HUL's volume drop of 7 per cent surprising analysts.

The results for quarter ending June 30, 2020 for HUL is likely to be worse, given a lockdown from April 1 to May 17, which would be factored into the results. For Reliance, its digital business, including Reliance Jio has been a saviour. The stock is likely to open lower on Monday.

Volatility to continue

It is highly likely that we may see volatility continuing into the next week and the trend seems clearly lower. Rising Covid-19 infections and poor corporate results are a cause for worry. In any case with the markets have rallied significantly in the month of April, some profit booking is likely. The much awaited second stimulus has also been testing the patience of investors, though it is likely we may see some announcement next week.

Given that the Nifty company earnings are likely to be impacted significantly for 2020-21, the markets do not look too attractive at these levels.

It's better to sit on the sidelines and stay in cash, given that the Covid-19 is a big unknown. At least, the global financial crisis of 2008 was more predictable and one could at least ascertain the damage to a certain extent. This time around, it is completely a different ballgame with no certainty at all.