As global cues turn positive, will market continue to gain next week?

MUMBAI: Benchmark equity indices may extend their gains next week helped by rise in risk appetite among investors globally, and enthusiasm for corporate earnings and economic growth. Investors’ focus will increasingly move towards corporate earnings with several sectors likely to report bumper quarterly numbers beginning next week.

This week, the Nifty50 and BSE Sensex ended with gains of nearly 2 per cent and stretched the run of quarterly gains to the fourth successive quarter, helped by strong buying from domestic institutional investors and positive global cues.

The week’s action was dominated by metal and banking companies, but the true winners were shares of midcap and smallcap companies. The Nifty Midcap 100 and Nifty Smallcap 100 index rose 4 per cent each during the week, outperforming the Nifty50 index, reflecting that investors are looking past the surge in Covid-19 cases in the country and focusing on the reopening when vaccinations reach critical mass.

Investors were able to ignore the rise in US Treasury bond yields and the US dollar index during the week as they focused on the positive effects of the US’ plans to spend $2.3 trillion on building infrastructure. In addition to that, the year-end buying from mutual funds looking to deploy extra cash also helped the cause of the bulls on Dalal Street.

“India, where the external accounts are pretty good and the fiscal situation is under control and a series of reforms have happened over the past few years, the growth is set to pick up pretty robustly. In such cases, the (foreign) flows should remain robust over a period of time,” Rana B Gupta, managing director at Manulife Investment told ETNow.

The optimism among market participants was also visible in the positioning of traders in the futures and options contracts of the Nifty50 and Nifty Bank index. Traders bought out-of-money call options of the Nifty50 up till the 15,100-strike price, suggesting that they see room for more gains in the coming week.

Similarly, the traders bought the out-of-money call options of the Nifty Bank index up till the 35,000-strike price, indicating that they expect the index to test that level in the coming week.

“In the near term, positive bias is expected to continue. However, rising Covid cases in India would remain a key concern,” said Ajit Mishra, vice president of research at Religare Broking.