Moneycontrol Pro Market Outlook | Markets navigate mixed signals amid trade optimism and tech concerns

market

Dear Reader, 

The week began with promise as markets opened sharply higher following the announcement of the India-US trade deal. However, the initial euphoria proved short-lived, and selling pressure soon emerged despite the positive shift in sentiment.

The joint statement issued on India-US trade is expected to clear doubts on the earlier announcement by President Trump and can help market sentiment.

Broader market indices extended their winning streak for a third consecutive week, buoyed by steady inflows from both foreign institutional investors (FIIs) and domestic institutional investors (DIIs). The Reserve Bank of India's policy decision, which aligned with market expectations, further supported the momentum.

By the end of the week, the Nifty50 had climbed 1.47 percent to close at 25,693.70. A notable shift occurred in foreign investor behaviour—FIIs, who had been net sellers in recent weeks, turned buyers and pumped Rs 2,645.53 crore into Indian equities.

Sectoral performance painted a mixed picture. Realty, Infrastructure, Energy, and Oil & Gas sectors emerged as winners, posting gains between 3 and 5 percent. On the flip side, the IT index suffered a sharp 6.3 percent decline, while the Defence index dropped 5.2 percent and PSU Banks fell 1.6 percent.

The technology sector faced particular headwinds following Anthropic's unveiling of next-generation AI-powered automation tools. This development sparked concerns about weakening demand for traditional IT outsourcing services, triggering a sell-off in tech stocks. Meanwhile, investors began scrutinising the fine print of the India-US trade agreement, leading to a period of short-term consolidation as markets digested the implications.

Internationally, a cautious mood prevailed. A strengthening US dollar, combined with hawkish expectations surrounding the incoming Federal Reserve Chair, weighed heavily on precious metals. The risk-off sentiment was palpable across global markets.

In the United States, equity markets closed a turbulent week on a mixed note. Large-cap technology stocks endured their worst performance since November, while small-cap and value-oriented stocks continued their year-to-date rally.

The Dow Jones Industrial Average provided the week's highlight, surging past the historic 50,000 mark for the first time on Friday. This milestone underscored how the blue-chip index has outperformed its peers this year, as investors rotated out of technology stocks in search of opportunities elsewhere.

Looking ahead, markets are expected to remain rangebound in the coming week, though with a positive bias given the strong closing witnessed in US markets on Friday. Investors will likely continue to monitor global cues and domestic developments as they navigate the evolving landscape.

Nifty Struggles

The Nifty index continues to face pressure, with technical indicators painting an increasingly bearish picture. The weekly RMI momentum indicator remains firmly in sell mode and has now slipped below the zero line, underscoring the growing strength of the downward trend.

After the recent decline, prices found short-term support at the lower band of the Bollinger Band and bounced. However, this upward movement appears to be nothing more than a normal retracement—a temporary pause in the selling rather than a meaningful trend reversal.

The technical setup offers little comfort for bulls. The daily swing has turned lower once again, and downside momentum is gathering pace. The broader structural pattern continues to point toward a continuation of the bearish phase rather than the formation of a durable bottom. For now, the path of least resistance remains downward, and investors would be wise to exercise caution until clearer signs of stabilisation emerge.

Source: web.strike.money

Foreign Institutional Investors (FIIs) continue to hold a decidedly bearish view on the market, currently maintaining a net short position of approximately -1,50,250 contracts.

In recent days, there has been a noticeable reduction in their selling activity, suggesting some degree of short covering is underway. However, this tactical adjustment should not be mistaken for a change in sentiment. FIIs remain fundamentally bearish in their positioning, and all indications suggest this cautious stance is likely to persist in the near term. Their continued preference for short positions reflects ongoing concerns about market direction and suggests they are not yet ready to turn bullish.

Source: web.strike.money

The Daily Swing indicator remains firmly entrenched in overbought territory, currently reading 81.13. This elevated level suggests that the scope for any significant upward movement is limited, as the market has already stretched considerably on the upside.

Given these conditions, maintaining a bearish outlook appears to be the more prudent approach. Trading in alignment with the swing indicator not only offers a more favourable momentum setup but also provides a better risk-reward ratio going forward. Until the indicator shows signs of cooling off or reversing from these extreme levels, caution remains warranted for those considering fresh long positions.

Source: web.strike.money

An analysis of the percentage of Nifty 50 stocks trading above their 20-day Simple Moving Average shows that market breadth is approaching stretched levels. Currently, approximately 72% of Nifty 50 constituents are positioned above their 20-SMA, indicating strong underlying momentum.

However, this reading suggests the market is nearing overbought territory. Historically, this breadth indicator tends to peak between the 80 and 90 percent levels before reversing course. The key signal to watch for is a turn downward or a shift from this bullish zone into bearish territory. Once such a reversal occurs, price action is likely to follow suit, potentially marking the end of the current upward momentum and the beginning of a corrective phase. Investors should remain vigilant for this critical transition in market breadth.

Sector Rotation

Nifty 50 – The Benchmark Index ended lower, by +3.50% this week and closed at 25,693.70.

Leading Quadrant:

Nifty MNC has entered the leading quadrant after shifting from the lagging phase, with momentum continuing to build up. Nifty Financial remains firmly in the leading quadrant, with momentum continuing to improve. Nifty Oil & Gas has turned from the weakening quadrant into the leading quadrant, with a sharp increase in momentum, suggesting potential outperformance in the near term. Nifty PSU Bank remains in the leading quadrant and has witnessed a sharp improvement in momentum, suggesting continued strength ahead.

Weakening Quadrant:

Nifty Private Bank continues in the leading quadrant; momentum has started to decline, indicating some loss of strength. Nifty Bank also remains in the leading quadrant, but momentum is decreasing, pointing towards a possible slowdown. Nifty Auto has also been losing momentum, reflecting weakening participation and reduced sector strength going forward.

Improving Quadrant:

Nifty Energy has moved from the lagging quadrant into the improving quadrant, supported by a strong increase in momentum, indicating early signs of a potential trend reversal. Nifty PSE continues to remain in the improving quadrant with steadily increasing momentum, reflecting strengthening relative performance. Nifty Media has also continued in the improving quadrant and has witnessed a consistent rise in momentum over the last four weeks, suggesting sustained improvement in sector strength.

Lagging Quadrant:

Nifty Consumer Durables remains in the lagging quadrant and has shown a strong increase in momentum, making it an interesting sector to track in the coming week. Similarly, Nifty FMCG, Nifty Realty, and Nifty Infrastructure continue to remain in the lagging quadrant. Meanwhile, Nifty Pharma continues to lag in the quadrant of slowing momentum, reflecting persistent relative weakness and limited recovery signs so far.

Stocks to watch

Among the stocks expected to perform better during the week are JSW Steel, Sundaram Finance, Nykaa, JSW Steel, BPCL, GE Shipping, Karur Vyasa, JK Tyre, Indus Tower, Bharat Forge and MFSL.

Cheers,

Shishir Asthana