Dear Reader,
Indian markets experienced a significant rebound during the week, recovering after several weeks of consistent negative closing. The benchmark indices gained nearly three percent from their lows during the week. The BSE Sensex closed 1.54 percent higher, while the Nifty50 increased by 1.93 percent. This recovery is noteworthy not only because of the sharp upward movement but also due to the broad participation in the rise.
Large-cap stocks went up 2.4%, while the mid-cap index gained 3.3%. Small-cap stocks saw an impressive rise of 6%. All sectoral indices finished the week in positive territory, with the Metal index surging by 8.6%, the Media index rising by 7.3%, and energy stocks climbing by 6%. Throughout the week, more than 200 small-cap stocks recorded double-digit returns ranging from 10% to 40%.
The recovery is noteworthy as it occurs despite FII selling throughout the week. During the first week of the month, FIIs sold equities worth Rs 15,501.57 crore. In 2025, FII sales have reached Rs 1,61,864.31 crore.
Metal stocks rose due to expectations of a new stimulus package in China, while energy stocks gained as oil prices declined. Trump's tariffs contributed significantly to market volatility during the week. Although tariffs were initially announced, the decision to reconsider them added to the uncertainty, ultimately aiding the recovery.
US markets were badly hit due to Trump's unpredictable policy changes. US stocks experienced a sharp decline during the week, making it the worst week since early September. The three benchmark indices fell by nearly three percent over the week.
This week, Trump reversed his tariffs on imports from Canada and Mexico. The Trump administration announced that goods covered by the U.S.-Mexico-Canada Agreement would be exempt from tariffs for one month.
The European STOXX 600 Index ended the week down 0.69 percent, breaking a streak of ten consecutive weeks of gains. European markets were influenced by US trade policies, which contributed to the decline. However, due to differing geopolitical policies concerning Ukraine, defence and infrastructure stocks experienced a rally in many European countries, helping to soften the market's overall drop.
The DAX closed the week with an increase of 2.03 percent, while the CAC 40 managed a slight gain of 0.11 percent. Italy's FTSE MIB fell by 0.16 percent, and the UK's FTSE 100 Index declined by 1.47 percent.
During the week, the European Central Bank (ECB) cut its key deposit rate by a quarter of a percentage point to 2.5%. ECB President Christine Lagarde commented on the ongoing policy tussle with the US, saying, "We have huge uncertainty." This uncertainty already appears to be affecting investment and exports, prompting the ECB to lower its forecast for eurozone economic growth to 0.9 percent for 2025.
In Japan, the Nikkei 225 closed 0.72 percent lower, again impacted by the uncertainty surrounding Trump's policies. The yen strengthened against the dollar, ending at 147, compared to 150.6 a week ago. Meanwhile, the yield on the 10-year Japanese government bond rose from 1.37 percent to 1.53 percent, reaching its highest level since 2008 due to expectations of an interest rate hike by the Bank of Japan.
Mainland Chinese stocks rose on hopes of a forthcoming stimulus package. The Shanghai index moved up 1.56 percent, while the Hang Seng Index climbed by 5.94 percent.
During the recent National People's Congress meeting, the Chinese government set a growth target of 5 percent for the third consecutive year. Officials also established a fiscal deficit goal of about 4 percent, the highest level since 1994, and reduced the annual inflation target to approximately 2 percent, the lowest since 2003.
Growing tensions with the United States have prompted the Chinese government to raise its fiscal deficit target from 3 percent to 4 percent. The market anticipates increased borrowing and spending to achieve the growth target.
An all-round performance
After falling for three weeks, Nifty closed positive this week. That it is coming out of some of the most oversold readings since Covid on some parameters means we might look at an important stock market bottom. After five months of decline, we could also see a multi-month recovery. The last instance of a five-month consecutive decline goes back to 1996, followed by an 8-month recovery period.
This week's highlight is the onset of DIIs into the bullish camp. DIIs have been adding to their long positions in index futures; however, this week, their net long position ended up at an all-time high of 56274 on Thursday. Previous instances of such long positions by Domestic institutions have marked important multi-month bottoms in the market, with the last instance being in March 2023.
Source: web.strike.money
Market breadth also recovered this week from its lowest reading since June 2022. Once in a few years, this chart has a few extreme readings. This is going to be one of them. After dipping to its lowest point, the 40-day A/D ratio bounced back as an initial sign of a reversal in breadth.
Source: web.strike.money
The Put/Call ratio is rising from the range's lows but still not near the red line on top. This means that the market is not done with the move higher and should have more legs. Once we are near or above the red line, a short-term overbought condition may occur. The size of the bounce cannot be predicted from oversold conditions, as each case is different.
Source: web.strike.money
Sector Rotation
Sectors that changed Quadrants on the Weekly RRG:
1. From Weakening to Lagging: Nifty Pharma was already losing momentum and started underperforming the benchmark.
2. From Lagging to Improving: Nifty Infrastructure & Nifty Metal; Nifty Infra has struggled to gain momentum and has been juggling between the two quadrants in the past 3-4 weeks. Nifty Metal showed a fantastic gain in its momentum last week. If this momentum continues, it could also enter the Leading Quadrant next week. Investors must keep a close watch on Metal stocks.
Weakening Quadrant: Nifty IT is headed towards the lagging quadrant. If it fails to gain momentum, it could enter the lagging quadrant next week (like Nifty Pharma did this week). Nifty Bank and Nifty Financial Services in the weakening quadrant have not done much this week.
Lagging Quadrant: Nifty Consumer Durables, Realty, Media, and PSU Bank have extended their move further south in this quadrant, indicating their weak Relative Strength and momentum. Nifty Energy has gained momentum and is headed towards the Improving Quadrant.
Improving Quadrant: Nifty Oil & Gas continues to head East towards the Leading quadrant, which indicates it may soon start outperforming the Benchmark. Nifty Auto and Nifty FMCG continued to go south towards the Lagging quadrant, which means they are not able to keep up the momentum and hence fail to outperform the Benchmark.
Leading Quadrant: Nifty Private Bank outperformed the Benchmark and remained in the Leading quadrant.
Daily RRG:
Sectors that changed Quadrants on the Daily RRG:
1) From Leading to Weakening: Nifty Bank, Nifty Financial Service, and Nifty Private Bank; these sectors remained quiet this week and did not show much momentum.
2) From Lagging to Improving: Nifty Pharma indicates an increase in momentum but is still an underperformer compared to the Nifty 50.
3) From Improving to Leading: Nifty Infrastructure; This sector on the weekly RRG has entered the Improving quadrant from the Lagging quadrant. This is a good sign for Bullish traders to focus on.
Weakening Quadrant: Nifty Bank, Nifty Financial Service & Nifty Private Bank have entered this quadrant this week.
Lagging Quadrant: Nifty Auto & Nifty IT have remained weakest with low relative strength.
Improving Quadrant: Nifty Media and FMCG have shown an increase in momentum. Nifty Energy, Nifty Consumer Durables, Nifty Oil & Gas, and Nifty PSU Bank have dipped down slightly. Only if momentum gains next week will these enter the Leading quadrant. Nifty Realty has taken a U-turn and is headed towards the Lagging quadrant, indicating weakness.
Leading Quadrant: Nifty Metal is in a strong uptrend, though momentum might be peaking.
Stocks to watch
Among the stocks expected to perform better during the week are SRF, Kotak Bank, Chambal Fertiliser, Shree Cements, Bajaj Finance, SBI Cards and UPL.
Among the stocks that can witness further weakness are IndusInd Bank, IDFC First, Titan, Dr Reddy’s Lab, Dalmia Bharat, Hindustan Unilever, ITC and Dabur.
Cheers,
Shishir Asthana
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