Markets May Remain Dull & Range-Bound During The Week

In the absence of any fresh trigger, the Indian markets consolidated during the week ended on Friday. The markets are expected to remain range-bound in the coming week and continue to consolidate further based on the indications available from last week’s trading. 

Though Nifty hit an all-time high of 15,431, every rise has met with the selling in the form of profit booking as there is no new development in the offing. Also, the Futures and Options (F&O) February contract will end on Thursday, adding to the volatility. Indian benchmark indices ended lower in four of the five sessions of the past week. 

Almost 37 stocks from Nifty-50 lost ground this week with Pharma and select consumers having lost the most. However, the broader markets that are the NSE Mid Cap 100 Index and BSE Small Cap Index, both ended the week in green. 

The selling of frontline stocks was also triggered in the wake of rising bond yields across the markets and firm trends witnessed on the crude oil prices. The benchmark Nifty and Sensex ended with a weekly loss of 1.2 per cent. 

The rising bond yields provoke foreign portfolio players (FPIs) to withdraw money they have parked in the emerging markets and deploy them in safer assets like US Dollar and bonds. If the yields continue their uptick in the US bonds, FPIs may continue to book profit in the domestic market and we may see the stock prices correct further in the coming days. This was the precise reason the buying by foreign players slowed down in the domestic market as they were net buyers in the cash segment to the tune of ₹ 4,200 crore during the past week.

The US 10 Year Bond yields have risen from below 1 per cent to 1.29 per cent building on the economic impact of the US$ 1.9 trillion stimulus package. In India too, the 10-year bond yields have moved up from a recent low of 5.76 per cent to 6.13 per cent which could mainly be linked to the higher fiscal deficit estimates. 

“We expect domestic 10-year bond yields to be in the range of 6-6.75 per cent in this calendar year,” Rusmik Oza, Executive VP, Head of Fundamental Research at Kotak Securities said. 

Nirali Shah, who heads the Equity Research at Samco Securities says, Bond yields are inversely proportional to equity returns and when bond yields decline, equity markets tend to outperform while when yields rise equity market returns tend to falter. 

Going ahead, Nifty could witness some pressure from the likelihood of strengthening of USD. The weekly chart of USD-INR shows a strong appreciation in the rupee from November levels of 74.6/$ to 72.5/$ now. 

However, the current week’s performance suggests there could be a broad consolidation in the currency pair. In the forthcoming weeks, any weakness seen in the rupee may build up some additional pressure in Indian equities giving a reason for FPIs to book profits in the short term. 

“Therefore, investors should look to book profits from weaker quality stocks and certain overvalued cyclical bets and shift to quality businesses on dips”, Shah said.

Vinod Nair, Head of Research, Geojit Financial Services said, “The domestic market is expected to continue following the global markets in the coming week due to lack of any major domestic events. While, India’s GDP data for the 3rd quarter which is to be released towards the end of next week, is expected to show signs of economic recovery adding positive momentum in the Indian market".

Global Markets during the past week

Asian stocks pulled back from all-time peaks on Friday as higher longer-dated bond yields and disappointing U.S. jobs and economic data dented investor confidence in a faster economic recovery from the COVID-19 pandemic. Eurozone shares rose on Friday as data showed factory activity in February jumped to its highest in three years. Strong demand for manufactured goods helped the factory PMI soar to 57.7 from 54.8, the highest since February 2018 (vs 54.3 forecast). A PMI covering the euro zone’s services industry fell to 44.7 from January’s 45.4 (vs 45.9 forecasts). IHS Markit’s flash composite PMI registered 48.1 in February compared to January’s forecast of 47.8. 

Technical Outlook

The index has made a bearish engulfing candlestick pattern which indicates price rejection at higher levels. The bulls are getting tired as the index is trading much higher than its mean levels and at accelerated rising channel resistance. Shah said, “A brief corrective dip cannot be ruled out from this level. Nifty50 has broken the immediate support of 15,050 and a sustained price move below the support can trigger some more profit booking, going ahead.”.

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities said, “On a weekly chart, the index has formed a bar reversal candlestick pattern that suggests that in the short-term, weakness might continue shortly”. 

However, the medium-term texture of the market is still bullish and likely to continue, if the nifty manages to trade above 15,000/51,000 levels. In such a scenario, we could see 15,150/15,200 (51,600) levels where the market has spent maximum time during the recent fall, he said. 

On the flip side, a decisive break of 14,900/50,600, would result in retesting of 14,750/50,150, which was earlier resistance for the market before the announcement of the Union Budget. Chouhan suggested that the strategy should be to buy strong and heavyweight companies between 14,850/50,500 and 14,750/50,200 levels with a stop loss at 14,600/49,750. In the coming week, till the market is not stabilizing our focus should be on defensive sectors.

In Oza’s opinion, one needs to see if Nifty-50 holds the 15,000 level in the near term as technical indicators indicate that it has now eased out of the overbought region. “The next major support for the Nifty-50 is the 50 DMA placed at 14,321 as of now”, he said.

Expectations for the Week

Domestic bourses are expected to be swamped with IPOs given that the sentiment encircling listing gains continues to persist. Going ahead, markets are expected to remain dull and range-bound in absence of any major positive triggers. Therefore, investors are suggested to count on this opportunity to alter their portfolios by withdrawing monies from the weaker quality stocks and investing new monies in quality bets ‘only on dips’, Shah said.