Dear Reader,
The recent surge in bond yields in US financial markets has reverberated across the global economic landscape, raising fears and contributing to heightened volatility throughout the week. Nevertheless, easing tensions in the Middle East and a notable decline in oil prices helped the global equity markets recover.
In India, the week saw strong activity within the mid- and small-cap sectors, where over 100 stocks within the broader market yielded double-digit returns. This rally saw all sectoral indices conclude in positive territory despite foreign investors offloading Rs 14,703.72 crore within the cash market.
A resilient market
The Nifty index has demonstrated remarkable resilience, maintaining its position above the 20-week average at 21,993. Despite a recent interruption to its winning streak, the Nifty has once again embarked on an upward trajectory. The volatility witnessed since January now hints at an extended consolidation phase, with the crucial support level near 21,993 remaining intact. This scenario potentially sets the stage for a subsequent upward move, possibly culminating in fresh highs nearing the 23,000 mark, instilling confidence in its potential.
Further analysis reveals that foreign institutional investors (FIIs) have resumed short positions (See chart: FII Index futures position), as evidenced by the FII Index futures position chart, amounting to nearly 100,000 contracts. In the immediate term, this short stance could precipitate short-covering activities, laying the groundwork for a short-term rebound or resurgence, possibly propelling indices to new peaks.
FII Index futures position
Source: web.strike.money
The momentum swing (See chart: Daily Swing) was oversold below 10 from where it rallied last week. The bounce has been swift, meeting a 78.6 per cent retracement of the previous decline. The swing is now 62 and is not oversold or overbought. A reading above 80 is needed to call it overbought, and we are not yet there.
Daily Swing
Source: web.strike.money
On the monthly expiry day week, we got the highest on-record open interest combining stock and index futures (See chart: Total futures open interest). At 438444 crore, this shows a large number which, relative to Nifty, is close to the number seen at the 2008, 2011, and 2018 tops. This is slightly more long-term in mind, but this data warns us of a likely top in the market. So far that has not happened, so maybe the indicator failed this time.
Total futures open interest
Source: web.strike.money Indices and Market Breadth
The broader indices outperformed the benchmark indices by a significant distance. While Sensex gained 0.87 percent and the Nifty rose 1.23 percent, the mid- and small-cap indices jumped around 4 percent each. The Nifty Midcap and Small Cap 100 index touched a new high during the week.
All indices closed in the green during the week, with the Nifty PSU Bank index being the top performer with a 6.4 percent gain, followed by Nifty Realty, which gained 4.6 percent, and the Nifty Metal index, which rose 3.5 percent.
Kirloskar Pneumatic, Ester Industries, Tejas Networks, Aegis Logistics, MOIL, and Inox Wind Energy were among the top-performing stocks, posting more than 10 percent returns.
Aster DM Healthcare, Sun Pharma Advanced Research Company, Gujarat State Petronet, and Ramco Systems fell by more than 10 percent.
Global Market
A Friday rally in IT stocks saw the US markets close in positive territory for the week. Nasdaq stocks were the top performers for the week, especially the frontline stocks, which helped push the index 4.23 percent higher. The S&P500 gained 2.67 percent, and Dow Jones, which gained 0.67 percent, followed.
Earlier in the week, US inflation data at 2.8 percent, slightly higher than expected, gave global markets a scare. As a result, bond yields shot up to a 5-month high of 4.70 percent.
Reports say Global fund managers' fixed income allocations in the latest BofA Global Research survey are down to their lowest since 2003. Investors are now expecting the Fed to cut rates by only 35 basis points in 2024, compared to more than 150 points priced in at the beginning of 2024.
Nonetheless, a strong performance by IT stocks and global markets saw the MSCI World Index gain 2.44 percent in a week.
The Euro Stoxx50 gained 1.80 percent during the week, led by the FTSE 100, which gained 3.09 percent. The DAX was next at 2.42 percent, followed by CAC at 0.82 percent.
Asian markets also put up a strong performance, with Hang Seng rising 8.8 percent, Nikkei gaining 2.36 percent, and Shanghai closing the week with a gain of 0.76 percent.
Stocks to watch
Among the stocks that are expected to perform better during the week are Cummins, PNB, Divis Lab, Siemens, Cochin Shipyard, Lemon Tree, Axis Bank, and Bharti Airtel.
Among the weaker stocks are Kotak Bank, Berger Paints, HUL, Asian Paints, Atul, Jubilant Foods, and Dabur.
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