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Do not chase momentum in the current market

Smart money will continue to chase heavyweights, technology and select automobile and pharmaceutical stocks

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Last week was a historic day for the Indian equity market after India became the sixth largest economy in the world. According to Union Minister Arun Jaitley, India should be among world’s top five economies in the world by next year. 

Reliance Industries became the second Indian company after TCS to cross a market capitalisation of $100 billion, thus helping the BSE Sensex cross a new life-time high. A sharp decline in crude prices and stability in the global market lead to the rally in Indian market. 

At a time when other emerging market have corrected anywhere between 10 to 20% in 2018, Indian market have outperformed others in big way and we see this outperformance continuing on back of strong domestic flow of money into mutual funds. The next leg of rally in the Indian market will primarily be stock specific driven by earnings, movement in crude prices and the stance that China takes on the new import tariffs imposed by US. 

Focus on safety than chasing return 

IIP and inflation numbers were not very encouraging. In this uncertain global environment where the two largest economies are engaged in a tariff war, traders and investors should be concerned about safe returns and not chase high returns. We would closely watch the earnings of midcaps and also track Goods and Service Tax (GST) collections to make further investments for the long term. Currently, we see this market as a buy on dip market for the next few sessions. It’s going to be a rangebound market with the Nifty 50 Index expected to trade between 10,850-11,300 over the rest of the month. 

With the increase in minimum support price (MSP) by the government and higher rural income on the back of normal monsoons, FMCG, auto and rural theme stocks will do better in the coming few weeks. Smart money will continue to chase heavyweights, technology and select automobile and pharmaceutical stocks. Certain midcaps and metals are in oversold territory. Any respite seen in the global market with regards to soft stand by US and China will go well and one may see short covering in metal stocks. This is a traders market, do not chase momentum. But buy on dips and keep booking regular profits as a trader. As a trader one should differentiate between the men and the boys and manage the risk well.

The writer is head-Privilege Client Group, Reliance Securities

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