Moneycontrol Pro Market Outlook | Market structure indicates more room to go higher

Along with the frontline indices, broader markets closed marginally higher.

Dear Reader,

A significant decline in the Indian markets on Friday erased most of the gains made throughout the week in just one day. The markets had shown strength earlier in the week, reaching new highs according to benchmark indices. Despite the decline, the markets managed to close marginally higher.

The momentum in the Indian markets was fuelled by reports of record GST collections in April. The Indian government announced that GST collections had surpassed the Rs 2 lakh crore mark for the first time in April this year. Additionally, robust growth in two-wheeler sales, with a year-on-year increase of 31 percent, contributed to the positive market sentiment.

Furthermore, global markets provided support, with the MSCI World index gaining 0.79 percent over the week, largely driven by strong performance in the US market.

Bullishness to continue

Nifty closed positive for a second week running but is still not completely outside the broad range. A lot of intraday volatility is keeping traders guessing. But recently, we feel more bullish about the market as sentiment indicators have moved to the bottom end of their range and started to rise, indicating a new trade and trend on the upside. We should continue to make all-time highs in the coming weeks in the run-up to the results of the general elections.

Nifty 500 stocks above or below the 50 DMA (Day Moving Average) can indicate the market's health. Note that oversold readings (see chart Nifty 500-50 DMA) quickly result in lift-off, but overbought readings can persist. This is particularly true in a bull market. After we were oversold at the March lows, Nifty made a last-ditch effort to fall in late April but could not. The trend in the indicator has changed, showing that the broad market health remains strong.

Nifty 500-50 DMA

Source: web.strike.money

The average swing has been advancing from the lower red lines and is now 61. That is a little over midway (see chart Average Swing) and not yet in the overbought zone. This gives us time before we even consider a short-term pullback. The swing indicators are short-term readings of the market's internal momentum.

Average Swing

Source: web.strike.money

The 40-day Advance Decline Ratio (A/D ratio) was also at the oversold first red line at the bottom in March 2024. It coincided with the March 2023 reading, which was also oversold (see chart Advance Decline Ratio) at the first red line below. The difference is that from Dec 22 to Mar 23, we saw the markets fall, but from Jan 24 to Mar24 it’s more like a consolidation, which is in a rising channel rather than a falling one like last year. This means that the stock correction happened with rotation but did not impact the index.

Advance Decline Ratio

Source: web.strike.money

Indices and Market Breadth

Along with the frontline indices, broader markets closed marginally higher. After touching a new high, the Nifty closed 0.24 percent higher, while the mid-cap index closed 0.6 percent higher.

Among the top-performing indices were banks and auto stocks. Banking sector stocks were led by Financial Services which gained 3.11 percent and PSU banks stocks that gained just over two percent during the week. After a strong performance in April, especially in the two-wheeler segment auto stocks jumped 1.9 percent in a week.

Media and IT stocks were the top losers during the week, falling 3.13 percent and 2.25 percent respectively.

The top performers during the week were Newgen, which shot up by 26.89 percent, followed by REC Ltd, which gained 22.06 percent, and PFC, which gained 18.29 percent. The top losers during the week were Coforge, which fell 14.63 percent, SPARC, which dropped 12.38 percent, and BSE, which fell 11.20 percent.

FIIs continued to sell in the cash market in the first week of May 2024. After selling Rs 35,692.19 crore in April, FIIs sold Rs 3,356.45 crore in the first two days of the week.

In the futures market (see chart FII futures position), FIIs added to their short position, which now stands at -46,719 contracts. If the market continues to rise, short covering may fuel a further rally.

FII futures position

Source: web.strike.money

Global Market

Friday saw a sharp run in the US markets, recording the biggest advance since February. US jobs reports showed a slowdown, causing bond market yields to fall. Falling yields helped boost market sentiment, with traders expecting the Federal Reserve to cut rates in September 2024.

All three benchmark US indices closed the week in green, with Nasdaq closing 1.43 percent higher, Dow Jones up 1.14 percent, and S&P500 gaining 0.55 percent.

The European markets were mixed, with the French market falling 1.62 percent and the German losing 0.92 percent. However, the FTSE 100 closed 0.90 percent higher. Corporate earnings dictated the market movement during the week.

Asian markets closed the week higher, led by a 4.67 percent gain in Hang Seng. Shanghai was up 0.72 percent, and Nikkei 225 closed 0.79 percent higher.

Stocks to watch

Among the stocks that are expected to perform better during the week are Siemens, McDowell, Arvind, JSW Energy, CAMS, Motherson, Crompton and Lemon Tree.

Among the weaker stocks are Dalmia Bharat, HUL, Bata India, IdeaForge, Syngene, Zee, Ramco Cement, Berger Paint, LTIM, CCL, Page Industries and Manyavar.

Cheers, Shishir Asthana