Is this a new bull market or just a bounce back??

On 24^th March 2020 Prime minister of India announced the first locked down in the country. On the same day Nifty made a short term bottom around 7511. Stock market is a derivative product of the economy. When economy is booming, stock market gives abnormal profits and vice versa. Then why stock markets are going up in the locked down phase?? Ideally it should go down…

That’s because of liquidity pumped in by central banks in the economy. All central banks in the world have reduced interest rates sharply and purchased bonds from open markets. RBI announced moratorium till august 2020 so that borrowers will not have to worry about their EMIs. Now all banks can book the interest income in their books though they have not received EMIs. Since it is a moratorium period no new NPAs.   

Is this rally sustainable?? No, it’s impossible. Then when will this bubble burst?? It may be a week or a month or a quarter or two. We have already reached almost 60% of fiscal deficit in the first quarter of financial year. Unless Government opens the economy we may not achieve budgeted tax collections. Right now RBI has increased overdraft limits of state governments still many state governments are not in a position to pay salaries of employees. In private sector and MSME we have already seen so many job cuts. Situation is very bad on the ground. We locked down our economy when there are just 500 odd covid-19 cases and after 3.5 months we still reached to more than 8 lakh cases.

We may see so many NPAs in next 6 to 12 months. All leveraged businesses are in big trouble. So avoid buying leveraged companies. Bear market always gives you a chance to buy good stocks at cheap valuations.  

 

On technical front, Nifty is taking support of the trend line shown in the chart. Near term support of this trend line comes around 10500. If Nifty closes below 10500 on weekly chart, please exit all your long positions and wait for more correction.

To conclude, this is just a bounced back. So use this opportunity to exit your long trades. I repeat, you will get a chance to enter again at much lower levels. Happy Trading!! Stay Healthy and wealthy!!