Dear Reader,
Volatility marked the week as the trade war escalated, with the US and Chinese governments continually imposing reciprocal tariffs on one another. Despite heavy selling by Foreign Institutional Investors (FIIs), Indian markets closed only slightly negative.
The BSE Sensex index declined by 0.27 percent for the truncated week, while the Nifty50 fell by 0.33 percent. Mid-cap and small-cap indices also saw losses, ranging from 0.2 to 0.5 percent. FIIs sold equities worth Rs 20,911.30 crore during the week, bringing the total for the month to Rs 34,641.79 crore and for the year 2025 to Rs 178,990.35 crore.
However, there is a glimmer of hope for a market recovery in the coming week, as the US announced a 90-day pause on tariff increases for most countries, excluding China, and relaxed tariffs on certain electronic and solar imports.
A mixed behaviour was observed in global markets as seen in the chart below:
Source: Investing.com
While these measures seem positive, the volatility stemming from US President Donald Trump's sudden actions and reactions mean that market sentiment will likely remain shaky.
Data, including options data from India, indicates a build-up in short positions. Moreover, early results from the IT sector suggest a potential delay in discretionary spending, indicating a slowdown on the horizon that may weigh on investor sentiment.
During the week, the Reserve Bank of India cut the repo rate by 25 basis points, but the impact of this decision was minimal amid the ongoing turmoil of the trade war.
A mixed picture
The Nifty index has experienced significant volatility, primarily attributed to Trump's tariff policies. At this point, the situation presents a mixed outlook as the Nifty's breach of its March low is a concerning indicator. Nevertheless, its meaningful recovery from the lowest levels and a slightly lower weekly closing is somewhat encouraging.
We are contemplating two scenarios. In the best-case scenario, the Nifty index remains stable within a wider range of 22000 – 23800 and stays within this range for several weeks or even months. Conversely, the worst-case scenario would involve the Nifty breaking its recent low of 21743 and declining to a range of 21200 – 21000.
The conclusion drawn from both scenarios suggests that immediate upside movement is unlikely. In the upward trajectory, the region from 23050 to 23100 is expected to act as a significant resistance zone in the near term.
The OI-PCR (9MA) peaked at the end of March, signalling a short to medium-term high for the Nifty index. Generally, when this reading falls to 0.72 or below, it indicates that the Nifty index may form a short-term or medium-term bottom. Currently, the reading stands at 0.77, suggesting there is still potential for further correction in the short term.
Source: web.strike.money
The 20-day Advance/Decline (A/D) ratio is a slightly lagging indicator because it averages the A/D ratio over 20 days. Nonetheless, it provides valuable insight into the broader market trend.
Recently, this breadth indicator peaked at the first orange line at the top and has since declined, contributing to market weakness. Over the past few days, the market has shown signs of recovery, with the breadth experiencing a slight uptick. However, a durable market bottom is formed when this indicator dips below the first line and reverses upward. Until we observe consistent improvement in breadth and sustained gains in the Nifty index, there remains a risk of further deterioration in breadth, potentially pushing it down to the first or second lower line, possibly leading to additional market weakness in the near term.
Source: web.strike.money
In the past, we have observed that when FIIs have a short position in index futures exceeding -115,000 contracts, it typically coincides with forming a significant market bottom, leading to a higher high in the medium term. However, in January 2025, the FII short position in index futures surpassed -115,000 contracts and dropped to approximately -200,000 contracts. During Friday's trading session, the FIIs covered some of their short positions in index futures, with the current level standing at -110,234 contracts.
The key question is whether the FIIs will continue to cover their short positions or increase them further, potentially returning to -200,000 contracts.
On the way up, 23050-23100 will serve as a significant resistance level for the Nifty index. If the index sustains above this level, we can expect the FIIs to reduce their short positions aggressively.
Conversely, if the resistance zone between 23050 and 23100 is not breached on the upside, additional short positions could be created. Therefore, monitoring this data will provide valuable insight into the market's direction.
Source: web.strike.money
Sector Rotation
Nifty 50 – The Benchmark Index opened the week with a big gap down but covered up the lost points to end at 22828.55, just about 0.33% lower than its previous week’s close.
Indices positioning on Weekly Timeframe
Sectors that changed Quadrants on the Weekly RRG:
Weakening Quadrant: None of the sectoral indices are in this quadrant.
Lagging Quadrant: Nifty IT, Nifty Realty, Nifty Auto, and Nifty FMCG have moved further deep in this quadrant, indicating their Underperformance. Nifty Media, Nifty Consumer Durables, Nifty Pharma, and Nifty PSU Banks are still struggling; however, Nifty PSU banks have shown some momentum and tried to get into the Improving quadrant.
Improving Quadrant: Nifty Energy, Nifty Oil & Gas and Nifty Infrastructure are relatively underperformers but gaining steady momentum which could lead them in the Leading quadrant.
Leading Quadrant: Finally, Nifty Metal managed to gain strength and enter this quadrant. Nifty Private Bank, Nifty Bank & Nifty Financial Services continued outperforming the benchmark and gaining momentum.
Indices position on the daily timeframe
Sectors that changed Quadrants on the Daily RRG:
Weakening Quadrant: Nifty Oil & Gas gained momentum and is headed towards the Leading Quadrant. On the Weekly RRG, it is in the Improving quadrant. This means it is performing relatively better on longer and shorter time frames.
Lagging Quadrant: Nifty Pharma, Realty, Auto, Metal, and IT are Underperforming sectors that lack strength and momentum.
Improving Quadrant: Nifty Consumer Durables gained significant momentum to enter this quadrant from the Lagging.
Leading Quadrant: Apart from the new entrants in this quadrant, Nifty Private Bank, Nifty Bank, and Nifty PSU Bank have shown strength and outperformed the benchmark, but it seems the momentum is getting saturated. Nifty Financial Services is on the verge of entering the Weakening quadrant.
Stocks to watch
Among the stocks expected to perform better during the week are SBI Card, Bharti Airtel, Shree Cements and Chambal Fertiliser.
Among the stocks that can witness further weakness are Tata Elxsi, Supreme Industries, Deepak Nitrite, DLF, Tata Tech, Astral, Vedanta and Delhivery.
Cheers,
Shishir Asthana
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