Markets may continue rally in short-term

Backed by positive global cues, a strong start to the Q2 earnings season by TCS, dovish commentary from RBI, and hopes that stimulus package to bolster the economy will be announced before onset of festival season; the domestic markets notched strong gains for second consecutive week. The NSE Nifty gained 497 points, or 4.36 per cent, to close at 11,914 and the BSE Sensex climbed 1,812 points, or 4.68 per cent, to finish at 40,510 points.

It is pertinent to observe that the seven consecutive days of gains is the longest winning streak seen so far in 2020. Retest of record highs by December 2020 is not ruled out. Broader markets were seen underperforming with 0.3 percent fall seen in the S&P BSE Midcap index, and flat closing of the S&P BSE Small-cap Index. However, market players expect broader market to witness catch up activity since the Nifty Mid-cap and Small-cap indices have been forming a higher base at their 80 per cent retracement. Use Q2 results season to reshuffle portfolio with good Mid-cap and Small-cap companies, which are exhibiting good visibility of earnings for coming quarters. The key takeaway from RBI policy is maintenance of accommodative stance, optimism over India's growth story and willingness to take further steps to revive growth. Week ahead will be dominated by Q2 results from India Inc, macroeconomic data such as IIP for August, September CPI and WPI inflation numbers. Markets are expected to continue their rally in the short- term in anticipation of further industry proactive measures from the government.

Upcoming hearing of moratorium case in Supreme Court is also expected to drive the domestic market next week. For the market to move higher, market players need to see further stimulus from the government, to ensure that the recovery that is still ongoing can be at least smoothed over for next few quarters. The pandemic's impact on the economy will get fresh attention next week as the Q2 earnings season unfolds further. Key earnings to watch out for would be HDFC Bank, Infosys, Wipro, HCL Technologies, Mindtree and Avenue Supermarts. US Presidential Election: With just 25 days before the US election, the race is dominating traders' attention across the globe. For months, they have been wagering on extreme volatility around the election through the derivatives, stocks and currency markets, wary that the outcome could remain undecided for weeks.

The S&P 500 rose Friday, closing out its biggest weekly advance in three months as investors welcomed signs pointing to a decisive result in next month's US Presidential election. Strategists say surveys and talks with investors have recently found a flip-flop on sentiment in the event of a Biden's win: Investors previously said it would be bad for stocks, but they now are predicting it would boost markets.

Quote of the week: Based on my own personal experience – both as an investor in recent years and an expert witness in years past – rarely do more than three or four variables really count. Everything else is noise. – Martin Whitman

F&O/ Sector watch

On the back of sharp short covering, derivatives segment witnessed robust volumes. Option activity indicates maximum Put Open Interest (OI) at 11,500 followed by 11,000 strike; and maximum Call OI was at 12,500 followed by 12,000 strike. Marginal Call writing was seen in 12,400 and 12,200 strike while Put writing was seen at 11,500 then 11,800 strike. The Implied Volatility (IV) of Calls closed at 17.54 per cent, while that for Put options closed at 18.97. The Nifty VIX for the week closed at 20.38 per cent. PCR of OI for the week closed at 1.50 up from the previous week indicating put writing. Punters expect Bank Nifty to outperform the markets once again as from technical front Bank Nifty has managed to close above its 200 days exponential moving average on daily charts and given breakout above the same with marginally higher volumes. The immediate resistance for Nifty is placed at 12,000 level, while for Bank Nifty 24,000 to 24,400 zone is immediate resistance. After better-than-expected numbers along with large Rs 16,000-crore share buyback by TCS, market players are expecting overall IT earnings to be strong on the sequential basis given the ramp-up in deals, rising spends by clients and pick in execution along with margin expansion amid cost measures. HCL Technologies is likely to deliver around 5.5 percent sequential growth dollar revenue followed by Infosys (around 4 percent) and Wipro (around 3.5 percent). Wipro is also going to consider the share buyback proposal. Street reports indicate firm trends in both ferrous and non-ferrous metal prices. HR coil prices have notched multi month highs say retailers. Buy on dips Tata Steel, JSW Steel, National Aluminium and Vedanta. Stock futures looking good are Axis Bank, Colgate, Godrej Properties, LIC Hsg, M&M, Motherson Sumi and Ultratech Cement.