Markets To Be Volatile Ahead Of Union Budget And Monthly Expiry

After hitting record highs in the previous session, Indian equity markets fell for the second day in a row on Friday on the back of profit booking. Nifty plunged 218 points lower on Friday (-1.5%) to close at 14372, while Sensex tumbled 746 points (-1.5%) to end at 48,879.

The broader market too fell with Nifty Midcap 100/Nifty Smallcap 100 down -1.2%/-0.6% respectively. Except Auto and IT, all other sectoral indices ended in the red with Banks and Metals being the major losers, down more than 3% each. Financials and Realty too fell more than 2.5% each.

Global cues were weak as investors took profits after a recent rally that was driven by hopes of US economic stimulus by newly inaugurated President Joe Biden. Further, European markets opened weak amid concerns over the risk of further lockdowns, tighter travel restrictions and weak UK retail sales numbers.

On the domestic side, Nifty after a quiet start, dipped soon to close at session lows. For the week, the Nifty snapped it's 3-week gaining streak to close 0.4% lower. Nifty Auto with a gain of over 3% was the best weekly sectoral performer, with names like Bajaj Auto, Tata Motors, Apollo Tyres in the lead. Nifty Metal and Nifty Bank were the big laggards. Nifty Metal declined over 6% to post its worst week since September 27 and the Nifty Bank snapped its 3-week gaining spree.

Technically, Nifty formed a Bearish candle on daily scale and a Doji with long upper shadow on weekly scale which indicates that selling pressure is seen at higher zones. Now, till it remains below 14500, weakness could be seen towards 14250 levels while on the upside key hurdle exists at 14600-14750 levels. India VIX moved up by 1.1% to 22.4 levels. Volatility needs to cool down below 20 zones to commence the fresh leg of rally for the new life time high territory.

Going ahead, markets may continue to remain highly volatile ahead of Monthly expiry and Union Budget 2021. The ongoing earning season which kicked off on a strong note last week would further add to the volatility. The Fed monetary policy is due next week which would be the first one post newly inaugurated US President and thus would hold lot more significance. Overall, the long term trend of the market is positive, and thus we would advise investors to keep accumulating quality stocks on any dips. However, traders are advised to be cautious and book profit intermittently."

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.