Photo by Manoj Patil/Hindustan Times via Getty Images
In last few days, Indian stock market witnessed a rise of almost 10 percent lifting Nifty50 from 9000 to 9900 levels. Majority of this buying came on Thursday, which was the expiry day for F&O contracts.
In today’s article, we will analysis whether Nifty50 can sustain around 10,000 levels (currently at 9860 levels) or might fall back to 9000 levels!
But before that, we will see why stock market rose on Thursday.
Why Stock market rose on Thursday (30th April)?
The very first reason for why market rose on Thursday is that F&O contracts were going to expire on that day.
When expiry date of F&O contracts comes, every seller and buyer needs to square off or close its position.
Many big size Sellers who had sold in F&O started closing their positions after 25 April. The peak of Squaring Off by them was seen on Thursday, which was the last day for doing this.
Such rise in market on Thursday means huge amount of short positions were build in F&O.
When time of cutting (expiry) came, all big size sellers rushed to recover their postions. And they could do it only when they would cover their positions means buy them. (Buy = Open position), (Sell = Open position), (Buy + Sell or Sell + Buy = closed position)
This caused Nifty50 to jump by almost 350 points.
We have seen similar rally in March F&O contract expiry also.
Earlier in April 2020, Market Analyst Sanjiv Bhasin of IIFL had expressed his confidence on market and told to Public that Nifty50 will hit 10,000 by April end. Nifty doesn’t hit exactly 10,000 but reached to 9890 level which is very close to 10,000.
Virus will show signs of abatement Nifty will hit 10,000 by April end: Sanjiv Bhasin https://t.co/sTTUT9Po66 via @economictimes
— sanjiv (@sanjiv_bhasin) April 16, 2020
Probably, he knew about this huge buildup of short positions and was assuming that short covering will move Nifty50 atleast to 10,000 levels.
Specifically, stocks like Tata Motors, ONGC, Vendata, UPL, HCL Tech, JSW Steel and Hero Motocorp saw 10%+ rally and a sudden spike in last 1-2 hours. This means many sellers in F&O rushed to cover their positions in last 1-2 hours on Thursday and this caused great rally in stocks.
Dow Jones was also closed at higher levels. So, this also supported market on Thursday. News of possible Vaccine development and other news also supported market.
But as we look at the available data, it seems like stock market primarily went up due to short covering.
Can stock market sustain at levels around 10,000 levels?
Unlikely!
Why?
Because the buying we saw on expiry date was not solid one! Buying was primarily due to short covering.
Take a look at where SGX nifty trading now
Source: Sgxnifty.org
It is almost 550 points down. If this level in SGX Nifty remains the same or it goes more down on Monday, then Nifty50 is likely to lose all the gains it achieved in last week, when market will open monday.
If we take a look at our economy also, condition is not so good! As more and more days are passing under lockdown, it is adding more and more strain on our economy.
For now, it seems very difficult for the Nifty to sustain around 10,000 levels.
Also Read: What can we learn from previous Multibagger stocks?
What is ahead for Stock Market?
Negative things for the market:
- Continues Lockdown is adding more pressure on our economy.
- Almost all Supply chains have already got broken. These will take time to recover. Before their recovery, there will be no smoothness in economic activities.
- It is a big question how government will bring a good size Stimulus Package for the Economy.
- Earning Reports of Q4 have started coming. As per initial reports, it seems that many company may report disappointing numbers even in Q4 (which was less impacted from lockdown).
- We don’t know the exact number of Small firms and companies that are facing high level pressure and will declare themselves bankrupt during and after lockdown.
Positive things for the Market
Two biggest triggers for the market are Vaccine and Shift of US companies from China to India.
Many companies are trying to make vaccine for the coronavirus and many from them have already started trials on humans. If all goes good, then we can expect a potential vaccine by June or July.
Second trigger for the market is of shift of manufacturing hub in the world. By looking at the current conditions, it seems that many US companies may soon consider to shift their businesses from China to India.
New Report
Relations of China with European countries and US have already started declining and can more decline soon. This can force many Europe and US companies to shift from China.
News Report
Complete shift of manufacturing units and businesses are unlikely. But significant portion of volume can be considered by companies to shift from China to other nearby countries.
All over the world, our Prime Minister already has a good image. So, this can help our country a lot in future to attract these companies and many may really consider India as their preferred location for the possible shift.
If this happens, this will be a very big trigger for Indian stock market.
Also Read: Want to invest in stock market right now? Consider these stocks!
Conclusion
On Monday, a good sell-off in market is expected. But for short term, it is very difficult to say in which direction the market (Nifty50) will go in the future? Or will remain stabilised around 9,000 levels???
In this market, you should avoid any lump sum/bulk purchasing in shares as this could be very risky for you! Also, avoid those stocks which are already trading at very higher levels or have gain a lot from lower levels. By the way, if you are interested in stock market trading courses, then checkout this one of the best stock market trading classes in India.
Prefer buying only those stocks in good quantity where you think current levels are lowest possible levels or offering you good value.
Doing this thing will be beneficial for you whether stock market rises or falls in short term.
Now, I am ending this article here. Hopefully, you will make better trades and take better investment decisions.
Good luck 🙂
