Domestic barometers have mirrored global indices this week, with Sensex climbing 2,894 points, and Nifty adding 858 points. As per traders the global cues will deliver be the general trend for our markets.While India is consecutively reporting biggest single-day jumps in new COVID-19 cases, reports of pandemic slowing down in virus hit nations have kept the markets bullish in recent trading sessions. Further, the anticipation of stimulus announcements also has kept investors optimistic locally. Global sentiment improved as governments considered stimulus plans to control the crisis.
Indian markets were up by around 11% on a weekly basis, said Vinod Nair, Head of Research at Geojit Financial Services, adding that the week's trend was mostly in sync with global markets.
While hopes of fiscal stimulus and slowdown in new cases have raised optimism, the extension of quarantine period damaging demand and supply chains has kept investors worried.
Here are the top 10 factors affecting the financial markets' trend in India:
1. Economic Stimulus
Expectations of a coronavirus relief package to help the already slowing economy post the lockdown period enthused investors. "In India, there is an expectation that the worst affected sectors and MSMEs may get some relief in another package to be announced shortly," said, Vinod Nair, Head of Research at Geojit Financial Services.
Markets are emulating global indices said, Jimeet Modi-Founder & CEO, SAMCO Securities & StockNote and added, "Indian bourses have defied gravity by merely reacting to the global peers as India is still working on the second tranche of the economic package to combat the COVID-19 effects - first being only a $22.50Bn stimulus."
Experts indicated that global equities since late March are on a relief rally, already pricing in through stimulus led economic recovery while corporate shock remains unclear.
2. Globally induced market
Domestic investors have tuned in with global peers for the overall direction of the market as participants had already taken in the announcements of 21-day lockdown and the stimulus measures.
"It is also pertinent to note that barring the cautionary commentary by the management of one of the fastest-growing NBFCs on various scenarios of lockdown, markets still went higher implying the worst is discounted in the current scenario," Jimeet Modi said.
As per experts, globally, market indices have turned very volatile, amid a rising number of cases and probable extension of lockdown measures. By the March-end, markets reversed to bullish trend with expectations of infections peaking out in worse hit countries.
"The rally in the domestic market was mainly on the back of a strong relief move seen in US markets as the death toll with respect to coronavirus reduced a bit and thereby gave early signs of subsiding this pandemic," said Sameet Chavan-Chief Analyst-Technical and Derivatives, Angel Broking. He added, "Practically, the major impact of this epidemic has already been discounted by markets across the globe in last few weeks and there was just a small ray of hope needed to rebound sharply from extreme oversold or under-owned situations."
3. Short-term rally
Investors are being advised to proceed with caution worldwide, with markets bucking the bearish trend, led by the coronavirus outbreak news. With earning seasons kicking off soon, revision of earnings forecasts will be more clearer, analysts suggested for a long term approach and added that consumer-led demand recovery is the key for bulls to get the grip back.
Amid the bullish rally, Wall Street banks like Goldman Sachs, JP Morgan and Citigroup have urged caution to investors as markets turned bullish and participants rushed into recovery bets, claiming that more disruptions may lie ahead.
The recession signals are already visible in few worst-hit nations even after the financial help on an unprecedented scale from central banks and government, experts from Wall Street banks suggested.
The virus is guaranteed to throw the world into recession, and economists are becoming less convinced about the potential for a strong snapback in growth.
4. Fall in Coronavirus cases
Investors worldwide were optimistic over slowing of new virus cases since Tuesday, with death toll in countries considered corona hotspots also signalling signs of slowing down.
Since spread of the virus, markets have factored in the ground reality of the outbreak and reacted accordingly during the lockdown situation, experts suggested.
Although, the longer the pandemic continues, the longer the lockdown stays, impacting economy and companies. The slowdown in cases recorded worldwide as well as in domestic grounds will be a major factor for the markets in the following days
"One must not forget that the recent crisis is related to 'Health' and hence, it would be important to see further developments with respect to coronavirus over the weekend, " Sameet Chavan added in the daily market wrap up note by Angel Broking).
As per technical experts too, the real path of market trend would be decided on cues related to the Covid-19 epidemic.
5. India's lockdown extension
Domestic investors remained fragile fearing about the rising number of cases and probable extension of the lockdown. Extention of the lockdown will cause a reduction in earnings, potential supply disruptions.
Vinod Nair had suggested earlier that markets are also uncertain as to the government response after the official 21-day lockdown expires on April 14.
Further, each day since last Monday was the biggest rise in new cases on domestic grounds. Coronavirus cases continued to rise despite a complete lockdown in the country.
The government told Reuters that the country would have been hit with 820,000 cases by next week had it not imposed a nationwide lockdown, and claimed initial success in its fight against the coronavirus epidemic.
PM Modi suggested on Wednesday that the lockdown will be extended and restrictions will not be lifted in one go after April 14, equity analysts believe an extension would mean more trouble for the market.
"It seems that once the lockdown is lifted, markets will initiate taking notice of the ground reality and react accordingly as the aftereffects of the lockdown will start to emerge only then," Jimeet Modi added.
6. Key data release
Economic data has suggested the beginning of a vicious circle of a decline in consumer spending leading to lower corporate profits, lower corporate investment, more job losses and further decline in consumer spending.
Meanwhile, Reserve Bank of India said the outlook for India's economic recovery has been sharply altered by the coronavirus outbreak. The apex lender said that nationwide lockdown is set to sharply impact March quarter growth and analysts have cut their 2020/21 GDP growth projections to 1.5-2%, levels unseen in India in decades.
7. Oil output war
On the oil front, market participants across the globe awaited the outcome of the OPEC+ meeting. According to reports, OPEC+ is to discuss a massive cut of up to 10 mbpd in its meet Thursday. Brent crude has risen almost 56% from recent lows.
Global fuel demand has plunged by around 30 million bpd, or 30% of global supplies, as lockdown driven by coronavirus has curbed demand for the commodity.
Saudi Arabia's energy minister told Reuters on Friday that a final OPEC+ oil supply pact to reduce 10 million barrels per day (bpd), which was agreed on Thursday, hinges on Mexico joining in the cuts.
India VIX, that measures intraday volatility ended 5% lower at 49.56 on Thursday. It moved to its 11-year high, spiking 302.8% in the March series to 71.53 levels from mere 17, due to ongoing Coronavirus crisis. This indicates a volatile swing in the market, that may not give smooth ride and comfort to the traders. 'The volatility also depends upon the cooldown of markets across the globe,' Motilal Oswal added in its note.
"Volatility will continue in tandem will global markets where the trend in coronavirus cases globally and locally will dictate the further direction of the market, " Santosh Meena, Senior Analyst at TradingBells said.
9. Pharma stocks rally
Sector-wise, Nifty pharma index remained in positive territory, settling 3.5% higher, in line with gains in auto and FMCG sector. In the last one month, the pharma sector has risen over 13%, followed by 3.2% rise in FMCG. Nifty Pharma has risen 10.87% since the beginning of 2020.
Jimeet Modi said that the pharma sector was trending this week as the government approved partial export of two key drugs to fight novel coronavirus. Taking cues, the pharma index was up 35 % during the week. As this sector remained undervalued for the longest period of time, this week's rally has brought the index to comparatively fair valuations.
He added, "However, investors should not jump the gun and should stay away from this space for now as pharma is a crowded trade and situations can change very quickly depending on the US FDA approvals or if a foreign player starts manufacturing the same drug."
10. Technical outlook
Since the beginning of the year, BSE, NSE benchmarks have declined 24% and 25%, respectively. In March, the decline was 12% each, amid the coronavirus pandemic. Although, on a weekly note, both Sensex and Nifty added 10%. As per Nifty's near term outlook, the resistance of 9000-9300 zone would be a big challenge for the bulls, while major support is placed at 7500 and 6800 levels.Sameet Chavan said,"Nifty has now managed to surpass the '20-day EMA' for the first time since 24th February. Since there was complete broad-based participation in this move, it can be considered as a robust one. Looking at the way charts are shaped up, we will not be surprised to see this rally getting extended towards 9500-9700 over the next few days."
"Going ahead, we have a mildly positive outlook for the next week with the support and resistance placed at 7900 and 9400 respectively," Jimeet Modi from SAMCO Securities said.BSE, NSE advise investors to trade cautiously in illiquid stocks