Indian markets are outperforming its global peers this year. Last week was especially a stellar one where Nifty and Sensex hit their fresh all-time highs of 17,793 and 59,737, respectively. Meanwhile, Bank Nifty completed its unfinished business to test its new all-time high. Relief package for the telecom sector, the announcement of a bad bank, strong FII inflow and massive short-covering were key factors for the Indian markets to outperform.
Next week is going to be critical for the Indian market after a recent outperformance because there is some weakness in global markets where the outcome of Federal Open Market Committee (FOMC) meeting, which is scheduled on September 21-22 will be a critical factor.
There is a possibility that the US Fed may talk about the timeline of bond tapering which could be as early as November and that may lead to a cautious move in the global equity markets. Some signs of slow down in China are also a cause of worry especially for the metal sector and most of the metal stocks have started to show weakness from last week. Other than US Fed, the Bank of Japan will also come out with its monetary policy on September 22. Rising Covid-19 cases in the USA and other countries may also disturb the mood of the market.
The movement of the Dollar index and US bond yield will play a key role in the behaviour of emerging markets like India. The dollar index is trading near-critical resistance of 93.5 and if it manages to cross this level then we can expect a sharp surge moreover US 10-years bond yields are also giving signs of bottoming out. It will be important to see FIIs' behaviour if there will be a rise in the dollar index and bond yields because we have seen a strong buying in the last few days by FIIs and that is leading to strong bullish momentum in largecap stocks.
We are in a roaring bull market and I believe it may continue for the next 2-3 years but after a long time, I am sounding a little cautious as there are some signs which indicate that a short-term correction is around the corner. The Nifty Midcap index is witnessing a reversal from upsloping trendline resistance around 30,500 and Nifty also witnessed some selling pressure near the 17,800-17,850 resistance zone. The sharp rally on Thursday and the First half of Friday's, has taken out lots of weak shorts in the system whereas weak longs may get trapped at higher levels.
On the downside, 17,430-17,250 is a critical support zone; below this, we can expect a correction in the market and that could be extended towards 16,700 level while if Nifty manages to take out the 17,800-17,850 zone then we can expect it to hit 18,000 mark.
If we talk about derivative data then Put Call Ratio (PCR) is at 1.15 level and FIIs' long exposure in the index future stands at 68 percent which is still indicating comfort in the market but India VIX is showing an upside momentum that could lead to volatility in the near term.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.