Moneycontrol Pro Market Outlook | Can Nifty touch 23,000 this week?

Dear Reader,

Indian markets reached a new peak this week despite indications from the US Federal Reserve suggesting a potential delay in interest rate cuts. Domestically, the Reserve Bank of India maintained unchanged interest rates. Indian benchmark indices, which concluded 0.85 percent higher, stood out among a select few markets that ended the session in positive territory. Conversely, escalating bond yields exerted downward pressure on developed markets.

While equity markets continued their upward trajectory, the week's spotlight was on energy and gold, both experiencing significant price movements. Gold prices climbed for the third consecutive week, reaching a record high of $2324.79 per ounce. Brent crude oil was trading above $90 a barrel amidst concerns over potential Iranian retaliation following an Israeli attack in Syria that resulted in the deaths of Iranian military personnel.

Rally to continue

Even though the Nifty touched a new high, it could not close at an all-time high of 22526 this week. However, it was clear during the week that the bulls had the upper hand as Nifty consolidated above key hourly and daily averages. Crossing the hurdle of 22526 decisively can lead to an up move towards 22800 – 23000 in the coming trading sessions.

On the downside, the Nifty index has established a solid base around the 22250 – 22300 zone, providing a sense of stability. The 40-Day Exponential Moving Average (DEMA) at 22102 serves as a significant support level, ensuring that the bulls maintain an advantage as long as the Nifty remains above this level.

Market breadth has steadily improved as the Midcaps and Smallcaps joined the party this week. The 20-day A/D ratio (see chart—advance-decline ratio) should continue to inch higher, and we should see market breadth broaden in the coming weeks. Presently, the ratio is nowhere near the first red line on the way up, indicating that there is still room for the up move to continue.

Advance Decline ratio

Source: web.strike.money
The market-wide open interest 9-day average put call ratio (OI PCR) rose from 0.81 last week to 0.92 (see chart – OI PCR). The upper end of the range is around 1.05. This indicator also suggests that we are still some distance away from reaching the overbought zone in the short term. The rising OI PCR is bullish for the market, indicating that more people are willing to short put options than call options. This typically happens when the market participants think that the downside is limited in the short term.

OI PCR

Source: web.strike.money
Nifty has been in a narrow range this week and has consolidated around its upper end of the range. During the week, the FIIs' short positions have increased (see chart - FIIs index futures position) despite the Nifty index gaining marginally. Usually, FIIs build positions in the direction of the trend.

The price action suggests a bullish trend in the short term for the Nifty index, which will hold as long as Nifty is trading above the 40DEMA, currently at 22102. Breaking above the resistance zone of 22526 should lead to a pick-up of momentum on the upside, and that may push FIIs to cover the short positions in the index futures, thereby leading to a further short-covering rally.
Currently, the FIIs' net short position in the index futures stands at 35,190 contracts.

FIIs index futures position

Source: web.strike.money

Indices and Market Breadth
While benchmark indices traded near the all-time highs, small stocks had a free run. The small-cap index gained seven percent during the week, while the mid-cap index was up four percent, compared to the 0.85 percent gain of benchmark indices.

Nifty Midcap 100 index crossed the 50,000 mark for the first time, touching a high of 50,152.35.

Leading the pack of top-performing sectors was Media, which saw a robust gain of 6.7 percent. Metals also shone, rising by 5.3 percent on the back of positive news flow from China. Additionally, PSU Bank and Realty stocks each posted a solid gain of nearly four percent, contributing to the overall market upswing.

Despite the rise, foreign investors sold equities worth Rs 3,835.75 crore, just like they did in the derivatives market.

Among the top-performing stocks were Best Agrolife, which gained 52.31 percent; Indraprastha Medical Corporation, which closed 42.10 percent higher; and OnMobile Global, which ended the week gaining 38.48 percent.

Global Market 

On Friday, US stocks closed higher following a robust jobs report that bolstered confidence in the economy's strength, albeit hinting that the Federal Reserve might postpone interest rate cuts.

However, the rise could not help the US indices close the week in a positive manner. Dow Jones fell 2.27 percent, while S&P500 was down 0.95 percent, and Nasdaq fell 0.80 percent.

During the week, multiple signals from Fed officials reached the market, suggesting a delay in interest rate reduction. This caused the treasury 10-year Treasury notes to rise to 4.406 percent from 4.205 percent in the previous week. Further, strong data and hawkish comments pushed the chances of a June rate cuts down to 53 percent from 65 percent last week.
The MSCI World index was also down 1.03 percent.

Following the trend set by the US markets, European markets closed the week in the red. The Euro Stoxx 50 closed 1.38 percent lower, with DAX and CAC down 1.78 percent and 1.76 percent respectively. FTSE also fell, albeit less dramatically, by 0.52 percent. The market was further unsettled by rising oil prices and comments about Ukraine potentially joining the NATO group of nations.

Asian markets performed better, with India and China closing higher, while Japan fell 3.37 percent during the week.

Stocks to watch

Apar Industries, BEL, HAL, PNB, Canara Bank, Indus Towers, M&M, and NALCO are among the stocks that can witness upside momentum.

Asian Paints, Page Industries, and Bata India can remain under pressure during the week.

Cheers, Shishir Asthana