Moneycontrol Pro Market Outlook | Nifty ends 5-month slump — What’s next?

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Dear Reader,

The recent fiscal year concluded on a positive note, largely due to a sharp rally in March 2025. This eventful fiscal period witnessed the Narendra Modi government returning to power, initially boosting the market in the first half. However, the second half experienced a sell-off in the Indian market as foreign investors began to withdraw their funds, compounded by disappointing earnings reports and the implementation of President Trump's protectionist policies.

Despite these challenges, the benchmark indices ended the fiscal year with a gain of five percent. The midcap index performed even better, rising by seven percent, while the small-cap index matched the benchmark's return of five percent.

Several sectors showed positive performance, particularly financial services, which increased by 19 percent, and metals and pharmaceuticals, which gained between 10 and 11 percent. However, the sectors that closed the fiscal year in the red included PSU Banks, Energy, and Media, which saw losses ranging from 11 to 18 percent.

During the week, there was a slight gain, driven primarily by IT and financial stocks. Mid-cap and small-cap stocks underperformed and ended the week flat.

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Shishir Asthana

Principal Analyst, Research|Moneycontrol

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Strong foreign institutional investor (FII) buying and short-covering in the second half of March led to an impressive five percent gain by the end of the month. This marked the first instance of FII inflows in six months.

Inflows from FIIs are crucial for the rally to continue. Additionally, in early April, Trump's tariff decision will have a short-term impact just before the March quarter earnings season begins.
US stocks experienced selling pressure, particularly on Friday, due to weaknesses in IT stocks. The announcement of new tariffs, notably a 25 percent tariff on non-US-made automobiles, led to a sell-off that affected Indian automobile companies.

The STOXX Europe 600 Index also faced pressure, closing the week down 1.4 percent following a new wave of selling prompted by Trump's tariff announcement. The CAC 40 index fell by 1.6 percent, the DAX declined by 1.9 percent, and Italy's FTSE MIB dropped by 0.8 percent. However, the UK's FTSE managed to gain 0.1 percent.

Japanese markets experienced selling pressure, with the Nikkei 225 dropping 1.48 percent. Trump's announcement of a 25 percent tariff on auto imports impacted both Japanese and European markets. Japan's Prime Minister, Shigeru Ishiba, stated that the effect on the country's vital auto industry would be "very big," as automobiles account for roughly one-third of Japan's total exports to the United States. The Japanese government is currently considering an appropriate response to the tariff.

In contrast, Chinese markets ended the week relatively flat despite the tariff increases; however, the Hang Seng Index fell by 1.11 percent.

More legroom to move higher
Nifty closed the week positive and above the weekly moving averages. The week saw the Rohit Momentum Indicator (RMI) turn bullish, and prices crossed the averages, laying the stage for a move toward the 61.8 percent level of 24630. It may take a few weeks, but we will get there. A move above the recent high of 23800 also signals that the larger trend has turned bullish for the coming months.

This is an interesting setup as we end the month of March with gains. The positive month follows a five-month losing streak last seen in 1996. Back then, it was followed by an eight-month recovery; in the present scenario, we are still in the first month of recovery.

The short-term swing indicator has fallen this week to 30. The last time the Nifty consolidated, in the second week of March, it fell to 27 before the market resumed its uptrend. At 30, we are close to a similar reading and have gone sideways for a few days. We should be closer to the resumption of the uptrend now, as the market has rebounded from similar levels earlier.

Source: web.strike.money

The Put/Call Ratio (PCR), which compares the open interest of puts to the open interest of calls, measures option writers' short-term bullish or bearish sentiment. They tend to sell more puts when the market is strong, and conversely, they sell more calls when it is weak. Over the past 12 months, most market highs occurred when the 9-day moving average of the PCR was around 0.96, a level we reached this week.

However, we have also observed higher PCR readings near 1.04 during strong market conditions. It's important to monitor whether this level is surpassed in the coming days. It could indicate a strong market outlook for a longer time frame.

Source: web.strike.money

Market breadth measures the number of stocks advancing v/s the number of stocks declining. A 40-day average of this ratio gives us a medium-term signal of tops and bottoms. Here, the 40-day A/D ratio fell to similar levels as the bottom in 2022. From there, the first move up in the market continued until we got to the upper red line with an overbought reading.

We are not yet there for the current move, so it is too early to say that this rally has ended. The present one-way rally has caught many off guard as they did not prepare for it based on the extreme oversold readings on sentiment indicators.

Source: web.strike.money

Sector Rotation

Nifty 50 – The Benchmark Index opened (23515.40) and Closed (23519.35) the week around the same levels, forming a Doji Candlestick pattern and remaining just 0.72% higher than its previous close.

Weekly RRG

Indices positioning on Weekly Timeframe

Weakening Quadrant:  None of the sectorial indices are in this quadrant.

Lagging Quadrant: Nifty Pharma, Nifty IT, Nifty Realty, and Nifty Media have travelled further towards the left side, indicating their Underperformance. Nifty PSU Bank is struggling to move out of this quadrant. Nifty Auto and Nifty FMCG have lost further momentum and moved downwards.

Improving Quadrant: Nifty Energy, Nifty Infrastructure, Nifty Metal gained momentum at the start of the week but lost a bit towards the end to remain in this quadrant. Nifty Oil & Gas also lost its momentum and turned southwards.

Leading Quadrant: Nifty Private Bank and Nifty Financial Services have continued to show strength and momentum. Nifty Bank is the new entrant in this quadrant from the Weakening and will be the sector to watch out for in the coming week.

Indices position on the daily timeframe

Daily RRG

Weakening Quadrant: Nifty Metal slowed down on its momentum and remained in this quadrant.

Lagging Quadrant: Nifty FMCG lost momentum to enter this quadrant from the Improving.

Improving Quadrant: Nifty IT entered from the Lagging quadrant, indicating a gain in its momentum. Nifty Media and Nifty Consumer Durables have lost momentum, and a further loss of momentum could take them to the Lagging quadrant next week. Nifty Realty and Nifty Auto are also struggling to keep up the momentum.

Leading Quadrant: Nifty Pharma, Nifty Infrastructure, Nifty Energy & Nifty Oil & Gas remained in this quadrant throughout the week but lost their momentum, whereas Nifty Bank, Nifty Private Bank, Nifty PSU Bank and Nifty Financial Services gained momentum and showed relative strength against Benchmark Nifty 50.

Stocks to watch

Among the stocks expected to perform better during the week are Chambal Fertiliser, ICICI Bank, Eicher Motor, UPL, Bharti Airtel, HDFC Bank, Indigo, SRF and Muthoot Finance.

Among the stocks that can witness further weakness are Titan, KEI, JSL, Astral, BSoft, ITC, HeroMotoCorp and IndusInd Bank.