Moneycontrol Pro Market Outlook | A rebound likely ahead of the interim budget 

The market will keep falling till more shorts get added.

Dear Reader,

Indian markets were operational for only three days last week, with two concluding in the red, causing the benchmark indices to decline by one percent. The week started on a negative note due to a report suggesting that the market regulator SEBI was pushing for increased disclosure by Foreign Portfolio Investors (FPIs). To comply with SEBI's guidelines, FPIs must divest Rs 1.5-2 lakh crore over the next six months, potentially impacting future foreign investments.

Fortunately, the regulator clarified that there were no immediate plans to implement such norms. This clarification came at a crucial time as the finance minister prepares to present the interim budget. The upcoming week may witness a positive start due to the clarification, but the true direction will only become evident after the interim budget presentation.

In the last decade, interim budgets have witnessed minimal volatility, and the market has consistently closed flat on the day. Given the low expectations for this year as well, the likelihood of a lacklustre day is high.

A Bounce Likely

The Nifty has experienced a two-week decline, with weekly momentum indicators shifting towards the sell side. The Nifty may further decrease towards the 20400 level, near the 20-weekly moving average (WMA).

In the short term, sentiment indicators are entering the oversold zone, suggesting the possibility of a rebound. A bounce back to the 21500-21700 range (current level 21352) is plausible. However, selling pressure is expected to resurface, considering that the market has not yet undergone sufficient correction, and there is room for further downside.

The average swing at 18 is just below the minimum oversold zone, raising the question of whether a short-term bounce is imminent in the market. This rebound, lasting a few days to a week, may revolve around developments related to the interim budget.

Source: web.strike.money

The interesting data this week is that FIIs completely gave up on the long side on expiration. The month started with FIIs at 80,000 contracts long, but after the expiry on Thursday, FIIs are now short over 100,000 contracts.

This means that the market will keep falling till more shorts get added. Previous market bottoms saw slightly bigger short positions before a market rally. However, markets have also bounced from the current FII short position of 100,000 contracts, as seen in the chart below. The market can go up before coming down again.

Source: web.strike.money

The 40-day A/D ratio has been coming down but very slowly. Compared to the past, the decline is minimal and barely reflects a decent price correction, indicating the strong momentum in a broad-based rally. But a correction is not over till that pattern reverses. Many more stocks need to fall, and the ratio needs to be closer to where bottoms occurred in the past.

Source: web.strike.money

Indices and Market Breadth

Domestic indices ended the truncated week lower, losing around one percent. The media index was the worst-performing sector, falling 10.03 percent, thanks to the Sony-Zee deal breaking off. This was followed by the real estate sector, which fell 4.46 percent. The banking index continued to fall as HDFC Bank was under pressure and lost 2.59 percent.

The smaller indices' performance has been mixed. The small-cap index fell 0.7 percent, and the mid-cap index fell 1.78 percent.

Global Market

While the Indian markets have seen selling pressure, global markets have been strong. The MSCI World equity index, which tracks shares in 49 nations, gained 1.21 percent, hitting its highest level in almost two years.

US markets continued their move higher and gained nearly one percent during the week. European markets had a much better week, with the Euro Stoxx 50 gaining 4.19 percent. This was after the European Central Bank (ECB) signalled that it could cut rates by April. ECB chief Christine Lagarde said the money markets are pricing an almost 85 percent chance of a first quarter-point rate cut in April.

Asian markets also closed the week higher, especially China and Hong Kong, the top performers after the Chinese central bank released cash reserves to be held by banks, releasing one trillion yuan ($139.45 billion) in the economy.

Japanese market closed marginally lower week despite inflation in Tokyo cooling below two percent for the first time in over a year and a half.

The US market is up for six straight days after the economy reported better than expected growth.

Stocks To Watch

Among the frontline stocks showing strong upside momentum are Trent, Siemens, Godrej Properties, Thomas Cook, IRB, LIC Housing Finance, Sun Pharma, Tata Motors, NHPC, and JB Chemicals.

Stocks showing weakness are Moldtek Packaging, UPL, Hind Unilever, Atul, and Bata India.

Cheers,Shishir Asthana