Markets Next Week: A Short Covering Rally Looks Likely

The Sensex and the Nifty lost almost 7 per cent this week, with Friday seeing the second largest fall on the benchmark indices.

The coronavirus triggered fall, saw investor wealth to the tune of Rs 5 lakh crores being destroyed. Even some of the heavyweights like Reliance Industries, which have so far led the Sensex to new peaks, fell sharply. The benchmark indices lost comparitively less, when compared to the developed nations like the US and Europe.

Almost every category of stocks fell, with the worst being the metal pack. One seldom sees a fall of 13 per cent in a stock, but, Vedanta did fall as much as 13 per cent on Friday.

Bluechip stocks like PNB Housing Finance, LIC Housing Finance, ONGC, Oil India, Vedanta, Hindalco and Mahindra and Mahindra etc., fell to their 52 week lows.

Second largest fall on Friday

Friday saw the second largest fall in the markets, which shows the gravity of the drop. The Nifty small cap 100 fell more than 4 per cent, with the carnage not restricted to the largecaps alone.

The GDP numbers which came out for the quarter ending Dec 31, 2019 were slightly above estimates. However, it is unlikely that the stock markets would react to the same and would in fact react largely to cues from the global markets.

It would be interesting to see if the Nifty defends the 11,000 points mark. It has moved so swiftly down, that slightly more pressure and we would see it fall below that mark.

Should you go ahead and buy now?

It's time that investors start partially nibbling into stocks. A bounce from these levels is likely should the reports of caronavirus infections start abating. It is highly possible that the same could happen next week. The selling has been ferocious and the Nifty is down now almost 9 per cent from peak levels. Another 1-2 per cent fall is possible, after which the markets could become attractive all over again.

What's interesting is that the broader markets, apart from the index also look good for long-term buying opportunities.

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