Dear Reader,
The Nifty50 benchmark index moved in a narrow trading range throughout the week, ultimately closing on a positive note, buoyed by news of GST rationalisation. By the week's end, Nifty50 had recorded a gain of 1.29 percent, with Largecap, Midcap, and Smallcap indices also making strides of 1.4 percent, 1.8 percent, and 2.5 percent, respectively.
However, the week also marked the continuation of foreign institutional investors (FIIs) selling, which extended to a tenth consecutive week, amounting to Rs 5,666.90 crore. The sector movements reflected the impact of GST rationalisation, with metal stocks experiencing a notable increase of six percent. The auto index followed closely with a rise of 5.2 percent, while the Consumer Discretionary index climbed by 3.6 percent. In contrast, the Information Technology index faced a decline of 1 percent.
Globally, the equity markets were characterised by volatility, but the bond market emerged as the main focus this week. German and French 30-year yields reached decade-high levels, driven by escalating debt and fiscal imbalances within the Eurozone.
Source: investing.com
As the Indian markets remained within a tight range, a slight shift in geopolitical dynamics over the weekend, marked by a moderation in rhetoric from US and Indian officials, could potentially enhance market sentiment in the near term.
Furthermore, the extreme pessimistic position by FIIs, as reflected in the lowest long position ever, suggests that a short boost can result in rapid short covering.
Room for upside
The Nifty index's weekly close—whether positive or negative—seemed less significant this time as the market has remained within the same trading range for several weeks. Throughout this period, the index has hovered close to the 40-week moving average, consistently staying above it. This establishes a solid support level around 24275, which could pave the way for a potential upward movement.
While the average swing is gradually rising, it hasn't yet surpassed the 80 mark, indicating that we are not experiencing an overbought condition in the short term. Currently, the average swing stands at 64, suggesting there is still room for upward momentum.
Source: web.strike.money
In our analysis of FIIs in index futures, we usually assess their positions by looking at the number of contracts they hold. Recent data suggests that we are witnessing the second-highest short position ever recorded in this context. On the other hand, when we examine the figures in percentage terms, the long positions are alarmingly low, currently sitting at a historic low of just 7.43%.
Source: web.strike.money
The market breadth is demonstrating a positive shift. The advance-decline ratio has been consistently higher than it was previously, indicating an overall strengthening in market conditions. The accompanying chart illustrates the 20-period average of the advance-decline ratio, providing a clearer perspective on this upward trend.
Source: web.strike.money
Sector Rotation
Nifty 50 – The Benchmark Index ended higher by +1.29% this week and closed at 24,741.
Weekly RRG:
Weakening Quadrant: Many Nifty Indices like Nifty Energy, Nifty Infrastructure, Nifty Oil and Gas, Nifty Bank, and Nifty Financial Services continue to see deteriorating momentum and relative strength. In fact, Nifty Energy is very close to the lagging quadrant. Nifty PSU bank entered the weakening quadrant due to deteriorating momentum and relative strength.
Lagging Quadrant: Nifty PSE and Nifty Realty have entered the lagging quadrant this week as the momentum and relative strength continue to deteriorate. Nifty Private Bank had entered the lagging quadrant last week, and its momentum and relative strength continue to weaken.
Improving Quadrant: Nifty FMCG index continues to gain momentum as well as relative strength this week. There has been some improvement in relative stability for the Nifty IT index, but the momentum continues to weaken.
Leading Quadrant: Nifty Pharma has entered the leading quadrant this week, and it continues to gain momentum as well as relative strength. A similar trend is visible in Nifty Consumer Durables, which entered the leading quadrant last week. Nifty Auto and Nifty MNC also continue to gain momentum as well as relative strength. Nifty Metal has seen a pickup in momentum as well as relative strength this week, hinting towards outperformance in the coming weeks. Nifty Media is the only index within the Nifty indices in the leading quadrant that is seeing deteriorating momentum as well as relative strength.
Daily RRG:
Weakening Quadrant: There are no Nifty indices in the weakening quadrant.
Lagging Quadrant: This week, Nifty Infrastructure has returned to the lagging quadrant after briefly entering the improving quadrant, and the momentum and relative strength are deteriorating. Nifty Private Bank, Nifty Bank, Nifty Financial Services and Nifty PSU Banks are seeing some pick up in momentum, which is an encouraging sign.
Improving Quadrant: Nifty Realty, Nifty Oil and Gas and Nifty Pharma have seen a dip in the momentum. If the momentum continues to weaken, these indices can see underperformance in the near term. Other Nifty Indices like Nifty PSE, Nifty Energy and Nifty Media are gaining momentum as well as relative strength.
Leading Quadrant: Nifty Metal is gaining momentum as well as relative strength. The Nifty Consumer Durables index is gaining relative strength, but the momentum has flattened out. The momentum of the Nifty Consumer Durables turns down, so some underperformance can be expected. The momentum of Nifty IT, Nifty FMCG and Nifty MNC is falling. If the momentum continues to decline, then underperformance in these sectors can also be expected.
Stocks to watch
Among the stocks expected to perform better during the week are M&M, TVS Motor, Dalmia Bharat, Cummins India, LTF, RBL Bank, Nykaa, Muthoot Finance, Tata Steel, JSW Steel and Eternal.
Cheers,
Shishir Asthana
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