Moneycontrol Pro Market Outlook | Potential for further rise

Volatility in Indian markets is expected to intensify.

The Indian markets continued their upward trajectory, with the NSE benchmark index, Nifty50, reaching a historic high of 23,000 before closing just below this milestone. This surge was driven by Foreign Institutional Investors (FIIs) covering significant short positions, adding momentum to the market.

Additionally, the market rally was supported by subdued FII selling in the cash market, which stood at Rs 1165.54 crore. However, it's important to note that FII sales in the cash market for May 2024 totalled Rs 34,459.88 crore, contributing to an overall sale of over Rs 1.18 lakh crore for 2024.

As the general election results approach, market volatility has heightened, reaching a two-year high of 24.22 before settling at 21.71 for the week. This volatility is expected to intensify, peaking on Friday, May 31, the last trading day before the announcement of exit polls after the final day of voting. Further, profit-booking can also act as a speed breaker.

Nevertheless, a downturn in the global market could dampen the enthusiasm in Indian markets.

Room for more upside

The Nifty index has decisively closed above its previous high of 22794, giving a strong weekly close. On the way up, the trendline resistance at 23125 and the monthly upper Bollinger band at 23345 will be the upside levels to watch out for in the forthcoming trading sessions. On the way down, 22775–22795, the earlier resistance zone, will act as strong support in the near term. Many sentiment indicators suggest that there is room for more upside in the forthcoming weeks. 

The Open Interest Put-Call Ratio of the 9-moving average (OI PCR (9MA)) has just been inching higher from the oversold zone (see chart Put-Call ratio), indicating positive momentum in the market. It suggests that smart money is willing to short more puts than calls. It has quite some distance to cover before it reaches its peak of 1.05.

Put-Call ratio

Source: web.strike.money

The FII's short position recently touched the first orange line, and from there, we see FIIs covering short positions (see chart FII Net Index Futures) in the index futures as the Nifty index has made a new all-time high. The historical pattern suggests that their position goes from one extreme to another. 

We should probably see FIIs turning net buyers in the index futures eventually, and that can lead to positive momentum in the Nifty index, which can continue till FIIs' position in the index future reach 1,20,000 contracts to 1,80,000 contracts.

FII Net Index Futures

Source: web.strike.money

The 40-day advance-decline ratio (see chart Advance-Decline Ratio) has cooled off recently despite the Nifty index moving higher, which is not a good sign. However, we have seen a fresh breakout this week. The expectation is that the breadth should start picking up. If the breadth continues to deteriorate despite the markets moving higher, it will be a cause for concern. Therefore, the breadth indicator should be watched closely in the days to come.

Advance-Decline Ratio

Source: web.strike.money

Indices and Market Breadth

The Indian benchmark indices rallied 2 percent to hit fresh milestones, with all sectors participating in the rally. The highlight of the week was Nifty crossing 23,000 for the first time ever.

The mid-cap indices took a breather, rallying one percent. Among sectors, the Public sector stocks saw a gain of 5.86 percent, Media gained 4.7 percent, metal stocks increased by 3.88 percent, while energy, Oil & Gas and commodities stocks rose over 3 percent each.

Among the top-performing stocks were Enser Communications, which rose 53.24 percent; MCon Rasayan, which rose 39.80 percent to 154.9; and Cochin Shipyard, which closed 35.18 percent higher at 1912.55 percent.

Among the top losers were Seamac, which dropped 26.69 percent to 920.55; Kotyark Industries, which lost 24.08 percent in value to close at 1018.1; and Varanium Cloud, which closed 22.53 percent lower at 22.7.

Global Markets

A rally towards the end of the week saw two of the three US benchmark indices closing in the green. Dow Jones closed 2.34 percent lower while Nasdaq was up 1.41 percent and S&P500 closed flat. The US Fed raising concerns over inflation and reinforcing the ‘higher for longer’ narrative saw US markets correct in the first half of the week.

A mixed performance across the globe saw the MSCI World Index closing 0.30 percent lower. 

European markets closed lower with the Euro Stoxx 50 losing 0.55 percent while FTSE 100 dropping 1.22 percent, CAC 40 falling by 0.89 percent and DAX closed flat at 0.05 percent.

Asian markets also saw some selling pressure, with Hang Seng leading the fall, dropping 4.83 percent, Shanghai losing 2.07 percent, and Nikkei closing 0.45 percent lower, thanks to a weaker Yen. 

Stocks to watch 

Among the stocks expected to perform better during the week are Maruti, Axis Bank, Coal India, Siemens, NTPC, M&M, Jindal Steel, Marico and Oil India. 

Among the weaker stocks are Berger Paints, Atul, CCL, Syngene, Bata India, SBI Card, Ramco Cement and HDFC Life.

Cheers,Shishir Asthana