The past week has again visibly demonstrated the robustness of the ‘Risk On’ sentiment in Indian equities. The Nifty has maintained its upward ride, but the journey hasn’t been without its own set of friction. The benchmark has had its share of volatilities, even as it continues its climb towards new highs, building a distinctly defensive tone in the market.
The vital observation here is the persistent presence of the same six sectors – FMCG, IT, Pharma, Energy, Media, and Commodities- in the improving quadrant of the RRG setup. They are drifting towards the leading quadrant while maintaining their relative momentum.
A review of the largely maintained uptrend in Nifty consistently presents us with a slight uptick in volatility. Though choppy at times, the index has managed to stick on to its upward trajectory, demonstrating the ever-strengthening Risk On sentiment while reinforcing that the underlying trend remains intact.
The market’s distinctly defensive tone is further reinforced by the Relative Rotation Graphs (RRG) Setup. This illustrative tool offers critical insights into the relative strength and momentum for a group of stocks or sectors. Analyzing the trends from a broader spectrum, this tool provides evidence of the Nifty’s consistent upward drive while also exposing a largely defensive setup in the market.
In terms of specific sectors, notably, FMCG, IT, Pharma, Energy, Media, and Commodities continue to display resilience. These six sectors have managed to inhabit the improving quadrant, showing their high relative strength and momentum. Not only have they held their positions steadfastly, but they are also seemingly veering towards the leading quadrant, further strengthening the defensive stance of the market.
Shedding light on two dominant sectors, IT and Pharma, they have upheld their constructive setup on weekly charts. While the IT sector is still in the process of consolidating its gains, it has held up and resisted moving into the weakening quadrant. The Pharma industry continues to make strides forward, showing an exciting buildup and a possible resurrection.
Meanwhile, pockets such as the Energy sector present themselves as a wildcard. Despite generating relatively lower relative momentum, the sector holds onto its position in the improving quadrant. Such dynamics indicate that the sector might undergo a positive rotation and could eventually become a leading sector in the times to come.
More importantly, the setup projected by RRG underlines the importance of maintaining a balanced portfolio, especially in the current market dynamic. It advocates for a judicious mix of sectors in the portfolio to absorb sudden market changes or potential setbacks. Point in case being the defensive sectors like FMCG and Pharma, which exhibit resilience even under choppy conditions and can offer steadiness to portfolios during periods of heightened volatility.
In conclusion, while there may be phases of intermittent volatility or minor pullbacks, the overall uptrend in Nifty appears to be firmly implanted. The RRG setup’s insight into the persistent defensive setup also offers cues for portfolio management, ensuring portfolio resilience during highly volatile market conditions. Investors would be well advised to stay abreast of the trends and keep their market strategies adaptive and agile. Continue to stay ‘Risk On’ but with a defensive bias to account for potential bouts of volatility.