New high levels may remain elusive for benchmark indices

Benchmark indices NSE Nifty and BSE Sensex have been swinging widely between the negative and positive terrains in the past 10 trading sessions, unable to break their lifetime highs. Though no clear trend is visible as to which way the market is headed to, analysts said a breakout could happen only with fresh shorts building in index futures.

While indices are not able to set new high levels, individual stocks and select sectors have notched up big gains with investors’ rotation of profits. Investors churning portfolios as they book profit also seems to be keeping market movement sideways, said analysts.

They added that IT and pharma sectors have not seen any improvement in their outlook and are continuing to be a drag on the upward move of the indices.

Strong fund flows into equity mutual funds have anchored the market at 9,300 for Nifty 50 and 30,000 for Sensex so far, a level the indices had tested two years ago as well. This time, however, there is a fundamental difference. In 2015 when Sensex was at 30,000 the total market capitalisation was Rs 104 lakh crore. When the Sensex is at the same level in 2017, the market cap has risen to Rs 145 lakh crore, increasing the market breadth considerably.

Analysts attributed the rise market cap to the equity market adding 54 new companies since January 2015.

They also pointed out that big-time listing of Interglobe Aviation, ICICI Prudential Life Insurance, Larsen & Toubro Infotech and Avenue Supermarts have increased the breadth of the market. This has led to fresh allocations to primary market issues and not to the index heavy weights which moves the benchmarks.

Market experts also observed that there could a 200-point correction in Nifty 50 given the lower rollover seen in May series of futures and options. Volatility index India VIX movement, however, points to a lower level of volatility in the near term. The 52-week high for India VIX is 23.0925 touched on November 23, 2016 as market was volatile due to demonetisation and Trump’s victory in the US elections. It touched 52-week low of 9.9175 on April 26, the day Sensex and Nifty created new lifetime highs. Volatility index is now moving in the range of 11 to 12 points to lower volatility in the near-term. Market experts noted that recent FPIs investment pattern could have posed a threat to upward movement of benchmark indices but domestic money has thwarted any selling pressure.

Jay Purohit, technical and derivative analyst, Angel Broking, said, “While FPIs were net sellers in index futures to the tune Rs 1,083 crore with decent rise in open interest, indicating formation of fresh shorts in Tuesday’s session. Since FIIs’ total position in index future is lowest since January 2017 expiry, their further selling figure may not bode well for bulls.”

Abhay Laijawala, research analyst, Deutsche Bank in the India Equity Strategy report said, “The surge in mutual fund equity inflows is beginning to insulate the Indian equity market, which has so far been largely determined by the velocity of FIIs, which showed increasing potency of domestic equity inflows and the powerful offset these flows have begun to create against FII selling.”

Valuation concern was also playing out on the minds of investors.