Moneycontrol Pro Market Outlook | More weakness likely in days ahead 

The market was also under pressure because of escalating tension in the Middle East.

Dear Reader,

Indian markets had a tough extended week, comprising six trading days, battling domestic headwinds even as the US market continued to rise. Though the week started on a strong note, HDFC Bank, the largest private sector bank, announced numbers that were below market expectations. The stock was hammered and being an index heavyweight, it pulled the entire market down with it.  

Indian markets ended the week 1.5 percent lower, while the US markets closed 0.7 percent higher.  

HDFC Bank has been only an excuse for the fall, as Indian markets have been structurally weak for the last couple of weeks, which may likely continue.  

Weakness To Continue 
Nifty has seen a sharp correction this week and has made a bearish engulfing candlestick pattern on the weekly chart, which is a bearish reversal pattern. In addition, the index has broken a higher top higher bottom formation on the daily chart by breaking the low of 21448. Friday's upmove should be viewed as a bounce/pullback. On the way up, a rise toward the 21704 – 21850 zone is likely to attract selling pressure, and the Nifty index should eventually break Thursday's low of 21285 in the coming days. 

The sharp decline during the week pushed the swing lower to 20 levels, an oversold zone. Normally, we see a 2-3 day pullback from oversold conditions. Since the Nifty index has broken the support line, the Nifty index can resume its downward journey in the days to come once the pullback is complete. 

Source: web.strike.money

The FIIs' positioning of index futures has taken a U-turn this week. At the start of the week, they were in a net long position in index futures by 81,695 contracts. However, they are ending the week with a net short position of 22,564 contracts. The FIIs typically take positions in the broader market direction and go from one extreme to another. If this pattern repeats, we can expect the FIIs' short position to reach 1,25,000 contacts to 1,70,000 contracts in the coming weeks, which will act as a headwind for the markets in the near term.

Source: web.strike.money

The 40-day advance-decline (A/D) ratio nearly touched the second red line on 22nd December 2023. When the ratio hits the second red line, it typically indicates highly overbought conditions. Post 22nd December 2023, the Nifty Index rose higher till mid-January 2024, but the 40-day A/D ratio drifted lower, indicating the breadth is getting narrower. The 40-day A/D ratio has already corrected from a highly overbought condition, but it can go down further as the Nifty index has broken the trendline support.

Source: web.strike.money

Indices and Market Breadth
Benchmark indices touched a new all-time high at the start of the week but lost 1.5 percent. Besides HDFC Bank-related selloff, the market was also under pressure because of escalating tension in the Middle East. 

The smaller indices, however, continued to outperform, with the Mid-cap index gaining 1.3 percent and touching a new high.  

The star performers for the week were Oracle Financial Services Software, SJVN, and NHPC, while the losers were Vedant Fashions, Zee Entertainment Enterprises, and Sun TV Network. 

The Small-cap index touched a new high, though it closed flat for the week. 

Among sectors, the Private Bank index lost 4 percent, Media stocks were down 3 percent and Realty index was down 2 percent. Among the gainers were the Oil & Gas index, which was up 3.5 percent, and Nifty Bank index rose 3.3 percent. 

Markets were also under pressure as foreign investors (FIIs) sold equities worth of Rs 22,972.66 crore during the week. Domestic institutional investors were cautious and bought shares worth Rs 10,712.73 crore.

Global Market 
The US market continued its strong run, thanks to a sharp recovery in frontline and banking stocks. Data on record online sales in December also helped improve market sentiment. Statements from Fed officials that interest rates would not be cut earlier led to some market correction.  

All major European markets closed the week in the red as economists at the World Economic Forum in Davos pointed out that interest rates are unlikely to come down before summer or 2024.  

Except for Japan, most Asian markets closed the week in red. Japanese markets touched a new 34-year high as inflation data showed prices easing. The People's Bank of China (PBOC) fund infusion failed to improve market sentiment in China, which closed the week 4.54 percent lower, while Hong Kong stocks lost 7.74 percent in a week.  

Stocks to watch   
Among the frontline stocks showing strong momentum on the upside are Tata Motors, TCS, GAIL, REC, Tech Mahindra, Cipla, and Trent. 

Stocks showing weakness are HDFC Bank, Vinati Organics, Navin Flourine, UPL, and VIP Industries.

Cheers,Shishir Asthana