Dear Reader,
Indian markets traded within a narrow range during the shortened week, concluding with a 0.67 percent decline in the benchmark indices. However, the broader market experienced more significant selling, with the mid-cap index dropping by two percent and the small-cap index declining by four percent. Over 110 stocks in the small-cap sector saw declines ranging from 10 to 40 percent. The IT sector was the worst performer, falling by 4.5 percent, while the media sector experienced a loss of 3.4 percent during the week.
Foreign Institutional Investors (FIIs) have been on a selling spree for six consecutive months, offloading equities worth Rs 21,231.25 crore in March alone and Rs 5,729.68 crore during the past week. Despite a significant decline in the US markets and the ongoing selling by FIIs, the Indian market has remained relatively stable, which is a positive sign for investors.
Last week, the United States initiated a tariff dispute with the European Union by imposing tariffs on steel and aluminium exports from the EU. In response, the European Commission announced counter-tariffs amounting to approximately $28 billion, which included a 50 percent tariff on American whiskey. In retaliation, President Trump threatened to impose a 200 percent tariff on wines, champagnes, and other alcoholic products from France and other EU countries.
Among developed markets, the US has been one of the most adversely affected by Trump's tariffs. The S&P 500, Nasdaq, and Russell 2000 indices have all declined for the fourth consecutive week, while the S&P MidCap 400 closed in the negative for the seventh week in a row.
On Friday, there was a significant increase of nearly two percent across all indices, marking the highest rise since the Trump election victory. However, this boost was not enough to prevent the market from closing in negative territory. Currently, the US benchmark indices are down by nearly 10 percent from their peak. This week's decline resulted in all five benchmark indices finishing in the red for the year to date.
Concerns about growth and fears of a recession have prompted investors to shift their funds from equities to gold, which has surpassed the $3,000 per ounce mark for the first time ever. Rising gold prices have led investors to move out from equity to gold exchange-traded funds (ETFs). Assets under management (AUM) of gold ETFs have nearly doubled in the last year to Rs 55,677 crore as of February 2025 as against Rs 28,529 crore in the same period of last year.
European markets have also been affected by the tariff battle. The STOXX Europe 600 Index fell by 1.23 percent, while the CAC 40 Index decreased by 1.14 percent, and the UK's FTSE dropped by 0.55 percent. In contrast, the DAX and Italy’s FTSE MIB posted slight gains.
The European markets were influenced by a comment from ECB President Christine Lagarde, who stated that exceptionally high uncertainty could make it more difficult for the ECB to achieve its two percent inflation target in the short term. A positive development during the week came from Germany, where the newly elected coalition government announced a deal to increase state borrowing. They are asking the outgoing parliament to approve a EUR 500 billion infrastructure fund and to loosen the debt brake in order to increase spending on defence.
Japan’s Nikkei 225 rose by 0.45 percent as the yen weakened to approximately JPY 148.7 against the US dollar, down from about 148.0 at the end of the previous week. Japanese markets are concerned about the proposed 25 percent tariffs on imported cars by Trump, as automobiles account for roughly one-third of Japan’s total exports to the US. Additionally, the yield on the 10-year Japanese government bond (JGB) remained near its highest levels since the 2008 global financial crisis, with expectations of further rate hikes this year.
Chinese markets rose by 1.39 percent on hopes of government stimulus after a finance ministry official announced plans to boost consumption. The markets are now trading at their highest level since mid-December. The Chinese government has set an ambitious economic growth target of 5 percent for the third consecutive year. To achieve this target, boosting consumption has been identified as the government's top priority for 2025.
Meanwhile, inflation in China continues to decline, with the core Consumer Price Index (CPI) falling by 0.1 percent year-on-year. This marks its first decrease since 2021 and only the second time in more than 15 years that the gauge has contracted. Additionally, the wholesale price index dropped by 2.2 percent in February, marking the 29th consecutive month of contraction. The decline in inflation indicates a lack of demand within the Chinese economy.
Data hints at an upside move
Even though we closed the week down, the Nifty stopped making new lows along with the US markets. The US stock market decline is new, and the Indian one is over five months old, so there is some lead-lag to consider. Sentiment indicators for Indian stocks are already off the charts and the most oversold since March 2023.
In a data-driven approach, we start with the short-term swing indicator, which is falling again and can indicate some near-term weakness. In the coming week, watch out for this indicator to turn or become oversold. Oversold would be a reading below 20 or even 10.
Source: web.strike.money
DIIs are taking on the FII position with an all-time high long position based on historical data, and history shows that, in the end, DIIs are winners when they turn this bullish. All you need is patience to see this play out over time. 62761 contracts net long index futures is the highest long position since NSE made available data in 2012.
Source: web.strike.money
The volume of puts traded relative to the volume of calls traded signals medium-term trader sentiment. The more puts they trade, the more bearish they are on the market. Over the last two years, we have noticed that today’s reading of 0.79 is the third time we have reached this level. The last two times this level was crossed, we saw a multi-month advance in the market. Of course, we must wait for the market to turn up constructively, but the signal is to buy the dip and not sell the rise going forward. This is contrary to the fear leading traders to become so active in Puts.
Source: web.strike.money
Sector Rotation
Nifty 50 – The Benchmark Index closed 0.69 percent lower at 22,397.20 in this truncated week.
Weakening Quadrant: Nifty IT has moved towards the Lagging quadrant, indicating reduced momentum and strength. Nifty Bank again has not done much this week, but Nifty Financial Services has gained momentum and inched up closer to the Leading Quadrant.
Lagging Quadrant: Nifty Consumer Durables, Nifty Realty, Nifty Media & Nifty PSU Bank have yet again extended their move further south-west in this quadrant, indicating their weak Relative Strength & Momentum.
Improving Quadrant: Nifty Energy gained momentum and is the new entrant in this quadrant from Lagging. Nifty Oil & Gas did not make much difference and stayed steady in this quadrant. Nifty Auto & Nifty FMCG continued to go further south, and further loss in momentum could take both these sectors into the Lagging Quadrant next. Nifty Infrastructure kept its momentum steady and managed to remain in this quadrant. Nifty Metal gained good momentum and is headed towards the Leading quadrant.
Leading Quadrant: Nifty Private Bank yet again continued to outperform the Benchmark and remained in the Leading quadrant.
Weakening Quadrant: Nifty Bank, Nifty Financial Service and Nifty Private Bank entered this quadrant from Leading last week, and this week, these sectors witnessed further loss in momentum.
Lagging Quadrant: Once again, Nifty Auto & Nifty IT have remained weakest with low relative strength and continued to move westwards.
Improving Quadrant: There was lots of action in Nifty Realty; it started the week in the Improving quadrant, lost momentum, and entered the Lagging quadrant. On the last day of the week (Thursday), it gained momentum again to enter the Improving quadrant. Nifty Media, Nifty FMCG & Nifty PSU Bank lost some momentum but showed some strength on the last day of the week. Nifty Consumer Durables headed southwards due to the significant loss of its momentum. Nifty Pharma showed some strength and increase in momentum this week.
Leading Quadrant: New entrants in this quadrant from the Improving are Nifty Energy, Nifty Infrastructure and Nifty Oil & Gas. These indices showed good strength and started outperforming the Benchmark with a steady (not increasing) momentum. Nifty Metal is still showing good strength but with a loss in momentum.
Stocks to watch
Among the stocks expected to perform better during the week are SRF, Chambal Fert, SBI Card, Shree Cements, Kotak Bank, Bajaj Finance and JSW Steel.
Among the stocks that can witness further weakness are Titan, BSoft, Supreme Industries, Bajaj Auto, L&T, Dalmia Bharat, Dr Reddy, HeroMotoCo, Dabur, GAIL and Colgate Palmolive.
Cheers, Shishir Asthana
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