Market Outlook: Mutant Covid, thin volumes to dent equities

An expected slowdown in foreign fund inflows along with expensive propositions and upcoming macro-economic data are likely to dent equities during the trade week ahead.

Lately, FIIs inflows have powered the equities' rally and gave an appreciation push to the rupee. FIIs have so far this month invested over $6 billion in equities and $594 million in the debt segment.

However, the ongoing holiday season is expected to lower the inflow volumes during the upcoming week. Besides, the new mutant strain of Covid-19 combined with high valuations might trigger bouts of profit bookings.

The new Covid strain has caused global anxiety with several countries suspending flight services to the UK, where it was discovered.

Nevertheless, the Brexit trade deal announced late on Thursday night and progressive rollout of anti-Covid vaccine is likely to arrest any major downslide.

"Institutional participation will be lower in the coming week due to year-end and Christmas considerations. Nifty has closed almost at the intra-day and intra-week high raising hopes of a better opening on Monday," said Deepak Jasani, Head of Retail Research at HDFC Securities.


"However, it could run into profit taking later in the week. After seven weeks of gain, Nifty has closed flat."

Furthermore, the upcoming monthly F&O expiry next week could add to the volatility.

"Going ahead, market is likely maintain its positive momentum on the back of abundant liquidity, declining Covid cases in India and effective vaccine rollout," said Siddhartha Khemka, Head, Retail Research, Motilal Oswal Financial Services.


"However, emerging risk pertaining to new coronavirus strain in UK may limit upside."

In terms of macro-data, investors will look forward to the release of figures on Eight Core Industries, Fiscal Deficit, Current Account and External Debt.

Additionally, automobile sales data and PMI (Purchasing Managers' Index) numbers, may give directional cues to investors during the upcoming week.


"For the week ahead, concerns regarding the fresh cases of the virus will remain in the limelight along with development on Brexit deal," said Vinod Nair, Head of Research at Geojit Financial Services.

"Investors should stay focused on quality sectors and counters and also watch at the trend of FII inflows, which is the main factors of the recent rally."

In addition, agriculture and allied industries' stocks are expected to attract investors after announcement of a new tranche of rural stimulus.

"During the coming week we are hoping to see rural stocks gain traction after the sops announced during the weekend," said LKP Securities' Head of Research S. Ranganathan.

"Being the last week of the Calendar Year 2020, one cannot but mention the fact that the FPIs have reposed faith in India by investing over $22 billion during CY2020." - IANS