Moneycontrol Pro Market Outlook | GST clarity, peace prospects to drive market rally

After a challenging six weeks, Indian benchmark indices finally closed in positive territory on the back of geopolitical developments. The mid-cap and small-cap indices successfully ended their three-week losing streak while large-cap indices broke free from a six-week lull.

During the truncated week, both the large-cap and mid-cap indices recorded a gain of 1 percent while the small-cap index climbed 0.4 percent. The benchmark Nifty index closed 1.1 percent higher even in the face of continued selling pressure from foreign institutional investors (FIIs) who divested Rs 10,172.64 crore during the week.

In terms of sector performance, the healthcare and pharma indices saw significant gains, rising by 3.5 percent. The auto sector followed closely with a 2.7 percent increase, and public sector banks recorded a 2 percent rise.

The market dynamics were further influenced by a decline in oil prices, attributed to US President Donald Trump's decision to extend the tariff truce with China for an additional 90 days. This extension provided a boost to global markets, as seen in the chart below.

The US markets wrapped up the week on a positive note, fuelled by growing expectations that the Federal Reserve might reduce short-term interest rates in their upcoming September meeting. Notably, both the S&P 500 Index and the Nasdaq Composite reached record highs during this period.

The week forward will benefit from the President Trump's meeting with Russian President Vladimir Putin, which was seen as instrumental in expediting the peace process. Looking ahead, the Indian markets are also likely to benefit from the Prime Minister’s Independence Day speech that addressed the rationalisation of the GST tax structure.

After six weeks of fall, a news-based strong rally can trap the substantial short positions held by FIIs that had accumulated over the past few weeks.

After enduring six consecutive weeks of negative closes, the Nifty index has finally turned the corner, closing positively this week. More significantly, it has reclaimed its critical support zone of 24450-24500, which instils a sense of optimism among bullish investors in the near term.

While the Nifty is still in a corrective mode from a medium-term perspective, there is potential for a short-term bounce towards 25000-25200, as long as it holds above the closing low of 25337.

Recently, a small positive divergence has emerged in the OI PCR (9MA). In the past few days, this metric has begun to rise, indicating that market participants are opting to short more puts than calls. Typically, such an increase in the OI PCR is associated with a positive short-term trend. Currently, the reading stands at 0.77, with the potential to climb to between 0.92 and 1. This suggests that there remains room for upside in the near future.

Source: web.strike.money

The 20-day Advance Decline (A/D) ratio hasn't seen an uptick despite the market rebounding from the lower levels, hinting at weak breath. However, the Nifty index has reclaimed its important support zone of 24450-24500 and is trading above it currently. If the Nifty index holds above the recent low of 24337 and breaks out from the falling channel, i.e. 24680, then we can expect some improvement in the breadth and positive momentum in the short term.

Source: web.strike.money

Last week, the Nifty index experienced a significant decline, closing below the crucial 24450-24500 zone. However, it quickly rebounded and managed to close above this important support level this week. As long as the index remains above its recent low of 24337, there is potential for a short covering rally. The current positioning of FIIs shows a short position at -182,879 contracts and a long percentage of just 8.30 percent. Historically, this situation has preceded medium-term rallies for the Nifty index, particularly when short positions exceed -113,000 contracts or when the long percentage falls to 17 percent or lower.

With this favourable setup for a medium-term rally driven by short covering, the outlook looks promising. If the Nifty index holds above the recent low of 24337, we can anticipate an initial rally that could drive the index up toward 25000-25200 levels, which serves as a significant medium-term resistance. Should the index break through this resistance decisively, it may spur a rally that leads to new all-time highs, potentially surpassing 26277.

Source: web.strike.money

Among the stocks expected to perform better during the week are Fortis, Apollo Hospital, TVS Motor, Indian Bank, M&M, Indigo, Delhivery, JSW Steel and Eternal.

Cheers,

Shishir Asthana