Market Outlook: Is FPI selling on its last leg?


NEW DELHI: After a gap-up opening on Monday, domestic indices struggled for the rest of the week but eventually managed to maintain the gains. Sensex and Nifty closed the week with gains of more than a per cent.

Analysts said two factors were responsible for the bounce in the market after a lacklustre few weeks — a reduction in FIIs selling due to good earnings in the US and the maintenance of domestic inflows. Elevated crude oil prices, GDP data and FII selling and upcoming central bank meetings were other factors that drove the market during the week.

The RBI is likely to raise rates, which the market seems to have already priced in. What will be key is the com

mentary on inflation and any roadmap of rate hikes. Any surprise next week can spring a reaction from the market.

“The lack of confidence in the domestic market resulted in a sell-off towards the closing hours of the week driven by concerns over Central Bank policy,” said Vinod Nair, Head of Research at

.

“The RBI is expected to hike rates by 25 bps to 35 bps and Fed by 50 bps, however, the central banks’ thoughts on growth and inflation will be an important determinant of market trend. If the central banks decide on a stringent policy tightening, the market mood can swing bearish.”

Some analysts said the recovery in the global indices combined with bargain hunting on the domestic front helped the index witness a rebound recently. But this move lacks decisiveness due to lingering issues like inflation, geopolitical tension, etc.

“We recommend booking profit on the rise, citing a strong hurdle at 16,900 in Nifty and waiting for further clarity. Stocks, on the other hand, are offering opportunities on both sides, so traders should align their positions accordingly. Going ahead, global cues aside, the upcoming RBI monetary policy meet and monsoon progress will be in focus for cues,” said Ajit Mishra, VP – Research,

Broking.

Technically, Nagaraj Shetti, Technical Research Analyst,

Securities, said the near-term uptrend status of the Nifty remains intact, and there is no sign of any reversal yet from the highs.

“Weakness from here could find strong support around 16,400-16,350 levels, and the Nifty could show upside bounce from the lower levels. The sustainable up move could only resume above the hurdle of 16,800 levels,” he added.

FII selling: exhaustion spotted

Foreign investor selling has been a key hurdle for the market for many months now. The selling that began in October last year and continues unabated till now. In May, too, the heavy selling in equity continued, particularly in financials and IT.

Total selling in equity in May amounted to Rs 39,993 crore, as per data available on NSDL. This takes the total FPI selling in 2022 till May 31st to Rs 1,69,443 crore. This massive selling is the major factor for the weakness in the Indian market, even though much of it has been balanced with substantial domestic flows.

However, analysts said there are signs of FPI selling exhaustion. In the early days of June, the selling has been in very small amounts, which is a break from the previous many weeks.

“If the dollar and the US bond stabilises, FPI selling is likely to stop and may even reverse. On the contrary, if US inflation remains elevated and dollar and bond yields continue to rise, FPIs may resume selling. US inflation data is the key,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.



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