FII selling is one of the primary reasons for the recent consolidation in the market, especially Nifty, where FIIs have large holdings in some of the major constituents, said Jyoti Roy, DVP - equity strategist, Angel Broking.
In an interview to Moneycontrol's Kshitij Anand, Roy said Nifty should find support near levels of 14,400 while last week's high of 14,967 will act as a resistance.
Q) Bears took control of D-Street last week even as the government assured a supply of 2 billion jabs. What led to the price action on D-Street in the week gone by?
A) Correction in markets last week was on account of global volatility led by sell-off in tech shares. Moreover, concerns also remained over the trajectory of the second coronavirus wave in India. While there was a clear peak in new cases due to lockdowns in the week gone by, markets are looking for a clear signal as to when state governments will start opening up the economy given that daily new Covid cases still remain significantly high.
Q) Small & Midcaps remained resilient in the fall seen in the week gone by. What is fuelling the optimism in the broader market space?
A) FII selling is one of the primary reasons for the recent consolidation in the market, especially Nifty, where FIIs have large holdings in some of the major constituents. Mid & small cap indices have held up much better than the Nifty given the lower FII shareholdings and greater interest by domestic institutions and retail investors.
Q) What are the important levels to watch out for? And, what should be the strategy as Nifty closes below 50-Days SMA for the week ended May 14?
A) While the Nifty may have closed below the 50-day slow moving average during the week, we would not read too much into it. We believe that this week is very crucial for the markets as we have started to see a sharp decline in new daily Covid cases in India. In case we see the trend continuing then there could be some positive price action, especially if global markets remain supportive.
On the downside, Nifty should find support near levels of 14,400 while last week's high of 14,967 will act as a resistance level. Any break above last week's highs will indicate that the consolidation is over for the markets. However, a break below levels of 14,400 could see the Nifty retest its previous swing low of 14,150.
Q) Sectorally, Utilities rose nearly 5%. What led to the price action?
A) Utilities had a good run during the week led by PSU stocks like GAIL, NTPC, PTC and Power Grid as there was significant value buying in PSU stocks. Moreover, a few of the stocks like Adani Transmission also contributed to the rally in the sector.
Q) IT index was the top sectoral loser - down over a percent. Can it be attributed to profit booking?
A) The sell-off in the IT sector can be attributed to profit booking due to sell-off in global tech stocks, along with premium valuations relative to historical averages. The IT sector has been on a dream run since the beginning of the Covid crisis given faster adoption of digital technologies which has led to an increase in medium term growth potential for the sector thus leading to significant rerating in multiples.
We believe that the correction in the sector is going to be short-lived and we continue to maintain our positive outlook due to strong medium-term growth potential.
Q) FIIs remain net sellers in Indian markets. What is spooking foreign investors – is it domestic or global factors?
A) FII selling in Indian equities can be largely attributed to the second Covid wave in India. The intensity of the second wave has caught all market participants by surprise and FIIs will wait for clear indication that the worst of the Covid wave is behind us before we see a reversal in the outflows. Global volatility led by a sell-off in the Nasdaq also contributed to volatility in the past week.