Contrarian bets should do better as market readies for battle of thrones

The domestic equity market consolidated during week gone by after assimilating the US-China trade spat in a more matured manner. Surprisingly, India had mirrored global markets since the beginning of May this year. Therefore, irrespective of the election outcome, except for one-day knee-jerk reaction, the market will continue to mirror global financial markets going forward as well.

This being the scenario, there is no point guessing who will come to power because after next week’s election results, the market will continue to chart its course reflecting the global scenario. Across the world, foreigners have sold stocks in respective countries and Indian market has faced the same fate. This reflects the global shift in risk appetite. Nonetheless, the fall in May seen in India has got nothing to do with volatility in the number of seats, as speculated by political analysts.

Speculation is doing the rounds that an MSCI India rejig is likely to see inclusion of stocks such as Info Edge and RBL, which are at their 52-week highs, and removal of stocks such as Voda Idea and Cadila which are near their 52-week lows.

Indices are nothing but good measures of a consensus view. Therefore, from a contrarian-investing perspective, higher returns are likely in Voda Idea and Cadila compared with that in Info Edge and RBL from a three to five-year perspective. But this strategy is only for investors having huge risk appetite.

Event of the Week

Bajaj Finance has truly delivered outstanding numbers given the great franchise, in Warren Buffett’s terms, that it has built of 34.5 million customers. Existing customers have contributed 67% to the business and there has been a 33% rise in customers from 26.2 million to 34.5 million, which acts as a double accelerator for delivering a 57 per cent PAT growth for March quarter compared with that in the previous year. But in general, corporate numbers were not encouraging given the liquidity crisis and status quo situation due to the elections.

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Technical Outlook

Nifty50 has started an upward journey after correcting 61.8 per cent of the rise since mid-February. Due to the election outcome, the market movement has been quite rapid, which can be advantageous for intraday traders if they are on the right side of the market. Nifty50 is expected to touch the 11,700 -11,800 range by next week if this momentum continues. However, given the expected volatility, it is better to stay on the sidelines and take a reactive trade rather than a predictive trade. If the market moves extremely on either direction, contrarian bets with proper risk management should do better.


Expectations for the Week

Next week is going to be the most happening one of the year, wherein all eyes would be not on ‘stock quotes’ but ‘vote quotes’. Speculation is that NDA is will gain in the upward of 300 seats and if it does in the best-case scenario, then the market will test the 11,800 market and correct thereafter.

However, a negative surprise would cause a one-time massive knee-jerk reaction and the market can tank up to 10,500-10,000 levels. It would be profitable for traders to take contrarian bets on either side and investors should ideally be silent spectators and let this T20-20 pass by. At the same time, if panic sets in, keep a shopping list ready with companies from sectors such as financialisation, consumption and FMCG which are reasonably priced.

Nifty50 ended the week at 11,407, up 1.33 per cent.


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