August 31, 2020, marked the beginning of a new margin system that hasn't as yet stabilized in the nine trading sessions since. Meanwhile, Nifty has fallen from a shade below 11800 to 11200 and bounced on the back of one stock. With Reliance Industries' weight well above prudential norm levels within the benchmark, this is turning out to be a very painful move for all Domestic Institutional Investors (DIIs).
The chase is on to correct the underweight, to the extent possible but the index structured as it is will perpetuate the underperformance as long as MDA keeps finding a new place to hang his hat.
Two gaps now contain the Nifty - upper side 11464 to 11510 and lower side 11300 to 11325. The court has pushed out the decision on the moratorium issue by instructing that non-payment be delinked from NPA at least till the end of Sept. That sword is beginning to rust as it hangs over the financial sector and the best that can happen is for the ball to be put in the RBI's court now. The Bank Nifty, after testing its 200DMA has fallen back on this uncertainty. This divergent performance between Nifty and Bank Nifty will keep us guessing.
The consensus trade, if for nothing else than the hope of a better entry point, is for there to be a sharp sell-off in Sept but the longer it holds off, the more likely it frustrates these positional bears. Yesterday was one such day, albeit completely aided by RIL.
That overnight the US markets gave up some of the bounce post the labour day weekend puts all major indices within earshot of their important support levels. That the GOP was unable to push through the second stimulus probably took the wind out of the market. With less than two months to go for the US elections, I'd expect more politicking to keep us guessing. Even the ECB, while promising to be supportive hasn't enhanced stimulus and with markets nowhere near cheap or even fair value, money is the only fundamental, ergo RIL and its money-raising being provided higher multiples despite there being no talk of earnings growth in the near term.
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