After spectacular rally use correction to re-enter (Market Watch)

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The week at the markets consisted of a mere three days as there were religious holidays on Monday and Friday. It was a great time at the bourses as they registered big gains and improved the sentiment. BSE SENSEX gained 3,568.87 points or 12.94 per cent to close at 31,159.62 points while NIFTY gained 1,028.10 points or 12.72 per cent to close at 9,111.90 points. The broader markets saw BSE100, BSE200 and BSE500 gain 12.73 per cent, 12.41 per cent and 12.14 per cent respectively. BSE MIDCAP was up 11.31 per cent while BSE SMALLCAP was up 9.40 per cent.

BSE HEALTHCARE index made a 52-week high on Friday of 14,820.13 points. It gained 2,158.37 points or 17.41 per cent to close at 14,553.34 points. Clearly progress on medication for covid-19 and the change in expected behaviour from US FDA as discussed between the two heads of states of India and the US did the trick. India would begin its export of drugs to the US to combat covid-19 in that country.
The top sectoral gainer was BSE AUTO which was up 23.05 per cent while the sector to gain the least was BSE CAPGOOD which rose 6 per cent. In individual stocks the top gainer was Mahindra and Mahindra which gained 35.71 per cent while the one to rise the least was Coal India, up 2.25 per cent.
Dow Jones staged a spectacular rally and gained 2,666.84 points or 12.67 per cent to close at 23,719.37 points. The Indian Rupee lost 20 paisa or 0.26 per cent to close at Rs 76.42.
In the meeting between the Chief Ministers and the Prime Minister it has been decided to extend the lockdown by a fortnight with strict norms to prevent the spread of covid-19. The details of the same are yet to be announced but they are expected to be quite stringent and work towards the next phase where there would be a gradual phased lifting of the lockdown.
The number of covid-19 patients globally has moved up to 17.83 lac with 1,08,907 deaths. The really heartening figure is that of 4.05 lakh patients who have recovered so far. The true test would be when the curve flattens out and there are more patients recovering than new cases being added. In India, the number of patients is 8,564 with 289 deaths and 972 patients having recovered. The lockdown has certainly helped in containing the spread and it is a trade-off between health and the economy.
Markets when they open on Monday and have a full five-day week could be under pressure on two counts. Firstly, after a 12-13 per cent rally there could be profit taking and secondly there could be a knee jerk reaction to the extension of the lockdown. Whatever be the reason for the correction if it happens, it would be for the good of the market and would make the rally of last week sustainable. FPI’s have over the course of the last three to four days invested about a billion dollars in the market and their confidence seems to be returning.
On the results front, TCS would be announcing their quarter and year end results on Thursday. This would give an insight to the happenings on a global platform as they have a presence in various geographies. This quarter could see results getting delayed by a fortnight to a month as many corporates grapple to complete their books and also the audit of the same.
Considering the fluid situation in the markets it makes sense to sell into the rally and book profits and wait for the imminent correction to buy back. Movements would be swift either side and the markets are bound to provide opportunities to one who has cash available. Volatility will continue and this will provide the opportunities to both buy and sell. Stock selection will be of paramount importance and it makes good business sense to buy those stocks in which one has the knowledge and comfort, rather than choosing those which have fallen the most. Almost every stock has bounced and rallied, but fundamentally sound companies rally would be sustainable while that of momentum stocks and speculative stocks may not be sustainable.
In conclusion, markets will give opportunities on both sides and it would be prudent to use rallies to book some profit so that they could be reinvested on dips.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)