Moneycontrol Pro Market Outlook | Markets brace for prolonged uncertainty

Markets

Dear Reader, 

The escalating conflict across the Middle East sent shockwaves through global markets last week, as fighting spread to engulf much of the region's oil-producing heartland. A sharp 12 percent surge in oil prices on Friday triggered a wave of selling over the weekend. With no clear end to the conflict in sight, uncertainty over its duration and its potential to disrupt energy supplies pushed US Treasury yields higher, adding another layer of anxiety.

A weakening rupee and relentless selling by FIIs weighed heavily on domestic stocks throughout the shortened trading week. The Nifty50 fell 728.2 points, a decline of 2.89 percent, while broader market indices fared no better — the Smallcap index shed 3.3 percent, and both the Largecap and Midcap indices lost 3 percent each.

The pain was felt across most sectors. PSU Banks bore the brunt of the selloff, tumbling 6.5 percent, while Realty stocks dropped 5 percent and Media fell 4.3 percent. The one bright spot in an otherwise grim week was the Defence index, which bucked the trend with a gain of nearly 5 percent.

FIIs offloaded equities worth Rs 21,831.19 crore during the week, marking their third consecutive week of net selling. The Indian rupee hit a fresh record low, losing 77 paise to close at 91.74 against the US dollar on March 6, compared to 90.97 the previous week.

The carnage was global. Every major market closed in the red, and Wall Street's fear gauge — the CBOE Volatility Index — jumped 5.74 points to close at 29.49, its highest level since April 2022, a stark reflection of the anxiety gripping investors worldwide.

Rising energy costs have revived fears of a fresh inflationary spiral, particularly as markets begin to price in a prolonged conflict rather than a swift resolution. Analyst forecasts for oil prices now range widely, from $80 to as high as $150 a barrel, representing the single biggest headwind facing markets today. Natural gas prices have also spiked sharply, hitting Europe especially hard and contributing to steep declines in European markets.

Looking ahead, the trajectory of the conflict will largely dictate the direction of markets. Any credible signal of a ceasefire or negotiated settlement could provide meaningful relief to investor sentiment. Until then, volatility is likely to remain the defining feature of global markets.

Market breadth weakens further

On the weekly timeframe, the index closed at 24,450.45, registering a decline of 2.89 percent. The technical picture tells a sobering story. The RMI momentum indicator continues to languish below the zero line, a breach of a major support level has already occurred, and price action is now carving out a clear lower-low structure — all hallmarks of a market under sustained pressure.

Adding to the bearish case, price has slipped below the 40-period exponential moving average. Unless sentiment reverses meaningfully, the path of least resistance remains to the downside, and further losses cannot be ruled out should this pattern persist.

Source: web.strike.money

The FII net index futures position indicator has broken through a significant trendline, a move that coincides with price breaching key support and continuing its descent. Together, these developments paint a clear picture of deeply bearish conviction among FIIs. Their current net index futures position stands at a heavily negative 1,74,291 contracts. With both the technical breakdown and this extreme positioning pointing in the same direction, FIIs are sending an unambiguous signal that further downside remains very much on the table.

Source: web.strike.money

The 14-day advance-decline ratio had been flashing a warning signal for some time. Even as prices climbed to higher highs, the ratio was quietly telling a different story, registering lower lows — a classic bearish divergence that suggested the rally was losing its internal foundation. That divergence has now been confirmed, with both the indicator and price breaking down in tandem. With this bearish divergence fully validated and the ratio continuing to fall, the evidence points firmly toward further downside momentum in the sessions ahead.

Source: web.strike.money

The percentage of Nifty 50 stocks trading above their 100-day simple moving average has suffered a significant support breakdown, and prices have followed suit, slipping below key support zones in a move that reinforces the deteriorating outlook. This indicator adds to the growing body of evidence suggesting that bearish momentum has further room to run. Compounding the concern is a broad weakening of market breadth — an increasing number of stocks are now trading below their respective moving averages, signalling that the selling pressure is not confined to a handful of names but is spreading steadily across the market.

Source: web.strike.money

The net new one-month highs indicator for Nifty 50 stocks has turned decidedly bearish. The histogram has crossed into negative territory, dropping below the 1.0 level, which effectively signals that no stocks within the index are registering fresh one-month highs at this point. This is a telling sign of just how broadly the weakness has spread. Far from being an isolated development, it reinforces the broader theme of deteriorating market breadth, with the indicator adding yet another layer of confirmation that the internal health of the market continues to weaken.

Source: web.strike.money

Sector Rotation

Nifty 50 – The Benchmark Index ended lower, by -2.89% this week and closed at 24,450.45.

Leading Quadrant:

In the leading quadrant, Nifty PSE is outperforming the broader market and could be an interesting sector to track for the next week. Following it, Nifty Energy, Nifty MNC, Nifty Pharma, and Nifty Infrastructure are all performing well, with notable momentum improvement. Meanwhile, Nifty Financials and Nifty PSU Bank show some slowing momentum. In addition, Nifty Bank, Nifty Private Bank, Nifty Oil & Gas, and Nifty Metals are seeing a moderate reduction in momentum, yet they remain positioned in the leading quadrant.

Weakening Quadrant: In the weakening quadrant, Nifty Auto remains in place, though we can observe a slight improvement in momentum. Interestingly, this is a sector to watch, as it shows potential to shift from the weakening quadrant back into the leading quadrant if momentum continues to improve.

Lagging Quadrant: In the lagging quadrant, Nifty IT continues to remain there, showing a sharp reduction in momentum. Nifty Realty also stays in the lagging quadrant with momentum still declining. However, Nifty FMCG, though still in the lagging quadrant, shows some improvement in momentum. Thus, Nifty FMCG may be worth watching for further potential recovery if momentum continues to pick up.

Improving Quadrant: In the improving quadrant, we have Nifty Media and Nifty Consumer Durables. Nifty Media has experienced a slight reduction in momentum, but Nifty Consumer Durables continues to show steady improvement and could be an interesting sector to watch, as it shows potential to move from improving into the leading quadrant if momentum growth continues.

Stocks to watch

Among the stocks expected to perform better during the week are Mangalore Refinery, Bharat Electronics, Belrise Industries, and Bharat Forge.

Cheers, 

Shishir Asthana