A tsunami of Fii Liquidity Inflow boosted Sensex and Nifty to new highs past 44000 and 13000 levels respectively. During Nov '20, FIIs were net buyers of equity worth Rs 653.2 Billion - their highest ever monthly net buying. DIIs were net sellers of equity worth Rs 483.2 Billion - their highest monthly net selling ever.
The situation on the economic front is improving, but remains grim. India's Q2 (Jul-Sep '20) GDP contracted by a less-than-expected 7.5% following an unprecedented decline of 23.9% in Q1 (Apr-Jun '20). GDP had expanded by 5.2% in previous Q2 (Jul-Sep '19).
India's fiscal deficit during Apr-Oct '20 came in at Rs 9.5 Trillion, which is almost 120% of the FY 2020-21 annual target of Rs 7.96 Trillion. The lag in revenues continues to outpace the government's efforts at expenditure compression.
BSE Sensex index Chart pattern
The daily bar chart pattern of Sensex touched a new intra-day high of 44825 on Wed. Nov 25, but formed a large 'reversal day' bar (higher high, lower close) and closed nearly 1000 points lower. The index recovered a little to close at 44150 by the end of the week - gaining more than 4500 points (11.4%) for the month.
All three daily EMAs are rising, and the index is trading above them in a bull market. Sideways consolidation during the past two weeks have helped to correct Overbought conditions of technical indicators.
Daily technical indicators are turning bearish. MACD has slipped below its signal line in bullish zone. RSI has dropped from its overbought zone. Slow stochastic has fallen below its 50% level. Some more consolidation or correction is likely.
Q2 (Jul-Sep '20) corporate results were a pleasant surprise, though top line growth was minimal and bottom line improvement was helped by tax cuts and cost curtailments. Q3 (Oct-Dec '20) results will either confirm that business recovery is for real or that the improvement in Q2 was due to pent-up demand following the long lock down.
Strong bullish sentiment in the market may be hinting that business recovery is in full swing. Anecdotal evidence suggests otherwise. The larger and more established companies are grabbing market share from MSMEs.
That is not conducive for a broad-based economic growth and employment generation in the long run. Small investors who prefer mid-cap and small-cap stocks may face rough times unless they realign their portfolios towards large-cap stocks.
NSE Nifty index chart pattern
The weekly bar chart pattern of Nifty rose for the fourth straight week to breach the 13100 level intra-week before closing at a new high of 12969. Huge buying by FIIs ensured that the index continued to soar in blue-sky territory.
Bulls remain in total control of the chart. The index is trading well above its three rising weekly EMAs in a long-term bull market. However, caution is advised as the index has gained a whopping 75% in just 8 months (from its Mar '20 low to the Nov '20 high).
Such a strong rally is unlikely to sustain much longer. Expect year-end profit booking by FIIs, which will help improve the technical 'health' of the chart.
Bottomline? Sensex and Nifty charts are climbing to new highs on a tidal wave of FII liquidity inflow. Year-end considerations can lead to some profit booking by foreign fund houses. Upside risk is increasing by the day. Hold existing positions with trailing stop-losses, or take some profits home.
This post first appeared on Stock Market Charts | India Mutual Funds Investmen, please read the originial post: here
