Moneycontrol Pro Market Outlook | Could we see a new high this week?

The Indian markets rebounded midweek, closing with a 2.03% gain.

Dear Reader,

Foreign Institutional Investors (FIIs) maintained a consistent selling streak in the extended trading week, except for one day, bringing the month's total sales to Rs 35,625 crore. Despite this pressure, the Indian markets rebounded midweek, closing with a 2.03% gain. This recovery came after a previous week of losses, even as global markets strengthened.

Globally, markets surged in the latter part of the week, spurred by the US inflation data that heightened expectations of a Federal Reserve rate cut.

This bullish sentiment was not limited to equities; gold and silver also saw significant gains, with silver particularly accelerating as the week progressed.

A recovery in motion

The Nifty index has bounced back sharply from the 20-week average this week. Many of the short-term sentiment indicators that were pointing toward oversold conditions have started to recover. They are nowhere near the overbought zone, suggesting that the rally is likely to continue in the near term. Also, the Nifty index has managed to close above the 61.8% retracement level of the previous decline, i.e. 22422, further strengthening the case for an up move in the forthcoming trading sessions.

One of the short-term sentiment indicators, the OI PCR (9MA), has just started to recover from its oversold zone (see chart OI PCR). This recovery, as shown in the image below, is a positive sign for the market. It means that market participants are becoming more comfortable shorting more puts than calls, which suggests a lack of significant downside in the near term. The OI PCR is still far from reaching its peak, but its current recovery indicates a potential bullish momentum in the market in the near term.

OI PCR

Source: web.strike.money

The 20-day advance-decline ratio (see chart Advance Decline Ratio) has started to inch higher in the past few days from the first red line, and we are seeing more stocks and sectors participating in the recent up move. Also, the Nifty index closed above the 61.8% retracement level of the previous decline at 22422, indicating that the short-term bottom is made. We will likely see the market rising higher and expanding breadth in the forthcoming trading sessions.

Advance Decline Ratio

Source: web.strike.money

The FIIs' positioning in the index futures is interesting because, typically, FIIs tend to form their position in the direction of the trend. However, the Nifty index has recovered more than 600 points from the recent low, but the FIIs have been shorting in the index futures. The FIIs' short position (see chart FII Net Index Futures) in the index futures has hit the first red line. The internals of the market indicate that we can see bullish momentum continuing in the short term. This can trigger a short covering rally, and the Nifty index can rise to an all-time high of 22794 and beyond.

FII Net Index Futures

Source: web.strike.money

Indices and Market Breadth

Benchmark indices posted a strong recovery in the second half of the week. However, the rally was more pronounced in the broader market, with the MidCap index touching an all-time high.

The Midcap and smallcap indexes traded around five percent higher. Apart from the FMCG sector, which closed 0.11 percent lower, all other indices closed in the green.

The top performer was Realty, which gained 7.43 percent, followed by metals, which gained 7.03 percent, and PSE, which was the worst performer in the previous week and recovered 6.92 percent.

The top gainer for the week was Bombay Metrics Supply Chain, which closed 43.77 percent higher, TCL Construction was up 42.57 percent, and MOIL closed 34.73 percent higher.

Varanium Cloud was the worst hit, falling 33.77 percent in the week, SEMAC was down 30.35 percent and Konstelec Engineers closed 30.28 percent lower.

Global Markets

Global markets had a smart recovery, with the Dow Jones crossing the 40,000 mark for the first time ever. Dow Jones closed the week 1.24 percent higher, followed by the S&P 500, which gained 1.54 percent, and Nasdaq, which was up 2.11 percent.

The MSCI World index gained 1.54 percent during the week.

European markets saw some profit booking after a strong rally the previous week. ECB policymakers had hinted at a possible rate cut in June last week, though subsequent action remained unclear, resulting in the rally fizzling out. Euro Stoxx 50, DAX, FTSE, and CAC closed the week marginally lower.

Asian markets were mixed. The Japanese markets closed 1.41 percent higher, while Shanghai closed marginally lower. Hang Seng, however, closed the week 2.95 percent higher.

Stocks to watch

Among the stocks expected to perform better during the week are Indigo, Siemens, Polycab, Trent, KEI, CG Power, Hindalco, Bharti Airtel, NCC and Jindal Steel.

Among the weaker stocks are CCL, Berger Paints, LTIM, KRBL, Atul, Tata Tech, Green Panel and Ramco Cement.

Cheers,
Shishir Asthana