Dear Reader,
The worst-case scenario that the market feared has now occurred: US bombers have attacked nuclear sites in Iran. Although there have been no reports of military retaliation, Iranian leaders have warned that the attack will have "everlasting consequences" and have called for an emergency meeting of the UN Security Council.
US markets remained rangebound last week, indicating that they did not anticipate an attack, especially after Trump said he would decide to take action within two weeks.
There may be a knee-jerk reaction in the markets on Monday. However, with the US entering the war and supporting Israel, there is a possibility that the conflict could end sooner than expected. Conversely, if China and Russia extend support to Iran, we could see increased selling in the market.
Although the market is speculative, there is no confirmed news of Iran closing the Strait of Hormuz, the world's most crucial oil route. If such news is confirmed, oil prices are expected to surge, and equity markets are likely to react negatively.
In any case, volatility in the markets will rise till the dust settles.
Foreign Institutional Investors (FIIs) have been active in the cash market, buying shares, but they are also increasing their short positions in the futures market. Notably, this week marked a shift as FIIs became net buyers after four consecutive weeks of selling. They purchased a substantial amount of Rs 8,709.60 crore, adding to a total buying figure of Rs 3,897.21 crore for June alone.
The Indian stock market closed last week on a strong note. This marked the second consecutive week of gains for benchmark indices, even in the face of ongoing global volatility, geopolitical tensions, and the rising spectre of crude oil prices. The benchmark indices saw an impressive increase of 1.59 percent for the week. However, it was a different story for the Mid-cap and Small-cap indices, which experienced declines of 0.44 percent and 1.9 percent, respectively.
In the US, benchmark indices concluded the week on a mixed note, fluctuating within a narrow range throughout. Apart from the Nikkei, all major markets ended in negative territory, grappling with the pressure of rising crude oil prices amidst escalating conflict between Israel and Iran.
On top of these developments, the US Federal Reserve held its June monetary policy meeting on Wednesday, announcing that the target range for the federal funds rate would remain unchanged at 4.25% to 4.5%. Fed Chair Jerome Powell remarked on the situation, acknowledging the elevated uncertainty but affirming that the economy remains in a solid position. He assured that the Fed is well-prepared to respond promptly to any emerging economic developments, maintaining a watchful eye on the unfolding landscape.
Indian market’s data for the previous week indicated that the market is undecided and could move on either side sharply.
Markets at a crossroads
Nifty closed the week slightly positive, and we are trying to determine whether the worst is over in the near term or if more shocks are on the way. Sentiment indicators have shifted from oversold to a more neutral position.
If the index surpasses 25222, we will look for potential new highs; if it falls below that point, we should expect lower lows.
When comparing foreign institutional investor (FII) positions with levels seen before 2025, they are at a point typically associated with an oversold market. In 2025, we witnessed the most extreme short positions on record. Therefore, if the market declines further, additional short positions may get added, but we already have enough to trigger a short squeeze. However, given the current volatile global scenario, in the event of a worldwide recovery, we can expect Indian markets to participate in it.
Source: web.strike.money
The second indicator represents the volume of puts traded to the volume of calls traded, referred to as the volume PCR ratio. The ratio decreases when the market rises and reverses at market peaks. The recent level is near what was last seen over two years ago at a market peak. Can we get a market peak here?
Source: web.strike.money
The percentage of stocks giving buy signals on the RMI (Rohit Momentum Indicator) out of the total stocks in the Nifty Smallcap 100 are plotted below. Readings below 10% mean that only 10% of stocks are in buy mode among the Nifty smallcap index stocks. The reading on Friday fell to 9%. Such low readings are associated with a market reversal, at least in the short term for a few days when stocks rally. Since the Nifty indicator for the same is not at the bottom, we can expect some divergence between large caps and small caps. Smallcaps and Midcaps may go higher and bounce more than Nifty in the near term.
Source: web.strike.money
Sector Rotation
Nifty 50 – The Benchmark Index rose higher by 1.59% this week and closed at 25112.40.
Indices positioning on Weekly Timeframe
Weakening Quadrant: Nifty Financial Services and Nifty Private Bank index continue to see deteriorating momentum and relative strength. These are the only two indices in the weakening quadrant right now.
Lagging Quadrant: The Nifty Pharma index saw some pickup in momentum last week, but this week, it has failed to see follow-through, and instead, it is experiencing deteriorating momentum and relative strength. The Nifty FMCG index continues to lag. However, the Nifty Metal index saw increasing relative strength and momentum.
Improving Quadrant: The Nifty Realty, Nifty Auto, and IT indices are gaining momentum and relative strength, whereas the Nifty Energy index’s momentum continues to weaken. Nifty Media and MNC index’s momentum has weakened this week. If this trend continues, we can expect the Nifty Media and MNC index to underperform in the forthcoming weeks.
Leading Quadrant: Nifty PSE, PSU Banks, Infra and Oil & Gas indices momentum continues to weaken. If this trend persists, it may push these indices into the weakening quadrant in the coming weeks.
Indices positioning on Daily Timeframe
Weakening Quadrant: Several sectors like Nifty Realty, PSU Banks, Media, Metal, Energy, Metal, MNC, PSE, Infra, and Financial are in the weakening quadrant, and they are consistently losing momentum and relative strength index.
Lagging Quadrant: The Nifty Auto and FMCG indices are in the lagging quadrant. Nifty Auto index is seeing some pick up in momentum, whereas Nifty FMCG is not seeing deteriorating momentum and relative strength.
Improving Quadrant: No index in the improving quadrant
Leading Quadrant: Nifty Pharma, Private Bank and Oil & Gas index are in the leading quadrant but are seeing weakening momentum. The Nifty IT index is an outlier, exhibiting very strong momentum and relative strength.
Stocks to watch
Among the stocks expected to perform better during the week are Max Healthcare, Manappuram Finance, SBI Card, SRF, Laurus Labs, Solar Industries, Muthoot Finance, Divis Lab, and Fortis.
Cheers,
Shishir Asthana
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