Markets week ahead: Lockdown decision to decide the trend

India’s bourses ended the week gone by on a high note, overcoming much of Covid-19 anxiety to a certain extent while tiptoeing with the global peers.
Nifty50 closed the week at 9,580, up by 6% in sync with the Dow Jones Industrial Average, which has seen a strong recovery from the lows of March 2020.

A trend worth observing is that stock markets in most countries, irrespective of the number of Covid-19 casualties and quantum of stimulus package from governments, have mirrored the US bourses.
Quarterly earnings are considered a pseudo-event in such times, but management commentaries from across sectors are an important yardstick to assess future prospects. Commentaries from the pharma companies have not been encouraging at all, given the existing pricing pressure from the US and the fact that the domestic market does not offer the runway for increased growth visibility.

Given that markets are forward looking, all the sector-specific ifs and buts have already been factored in the current prices.
The last week of May had a bullish undertone with broader market participation and mild optimism back on the Street, which suggests the likelihood of Nifty testing the 10,000 mark soon. However, a decisive break of the 9,900-10,000 range still looks quite difficult and another round of equity selloff cannot be ruled out unless we test and retest this range.

Going forward, the market will look up to the most buzzing word on the Street: ‘Lockdown’. Markets will take cue from the government decision to end lockdown 4.0, which is expected to cease over the weekend. If the lockdown gets extended, it would without a doubt create more pressure on our financial system which might culminate in a kneejerk reaction in the stock market especially in financial stocks. If the lockdown subsides, the bourses might witness a relief rally, but investors should stay away and book profits, as such a rally might be shortlived.
Next week, investors will be assessing the progress of economic reopenings against some new headwinds for the market.

The stock market has been mostly discounting unprecedented weakness in economic data, but the US May employment report will still be of major interest Friday. The unemployment rate is expected to jump to a staggering 19.8% from 14.7% in April.

Increasingly frayed relations between the US and China reared up at the end of the week as a negative force for markets. It is expected that stress to continue to be a concern. The US joined with other nations to condemn China’s new security rules for Hong Kong, which Beijing sees as an attempt to quell protesters.
Monthly vehicle sales, other key macro indicators will be closely eyed.

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