Stock Market Weakness Likely To Persist In The Week Ahead, Say Analysts
Nifty 50 can attempt 17,350 levels if it continues to trade below 17,600, say analysts.
Analysts expect weakness to persist after India's benchmark indices fell more than 2.5% each in the week ended Feb. 24 as selling pressure continued.
The NSE Nifty 50 fell the most in over eight months to close at 17,465.80, while the S&P BSE Sensex ended the week at 59,463.93.
Here's what two analysts BQ Prime spoke with expect in the week ahead:
'Nifty Expected To Trade In 17,050-17,680 Range'
Sudeep Shah, head-technical and derivative research desk, SBI Securities
Increasing concerns of a faster pace of rise in rates by U.S. Fed, post the recent uptick in inflation numbers, has led to selling pressure in global markets. Indian markets, too, witnessed profit booking from higher levels in the past week and closed below 200-day moving average of 17,600 at 18-week lows, implying acceleration of short-term weakness.
Nifty Index has closed negative for the third consecutive month with roll-overs for February declining to 73% (last month 79%) and much lower to the three-month average of 80%. The index started with a total open interest of 112.77 lakh shares compared to 104.20 lakh in the previous months, up by 8%.
Bank Nifty February rolls were at 83.9% as against the previous month’s 84.06%, higher than its three-month average of 82.77%. Bank Nifty started March Series with a total OI of 28 lakh as against 20.7 lakh shares of February expiry.
Even FII long exposure at the beginning of the series in index futures is at its lowest level of 19% (81% short build-up) in the last six months with 75% of the derivative stocks placed below its 21-day exponential moving average level. Technically, the index has witnessed the formation of lower-top-lower-bottom formation for all five sessions of the past week, which implies a likelihood of further weakness in the coming week.
The index has witnessed break-down below an important support zone of 17,600, which is a rising trend-line support zone, joining key rising swing bottoms of 15,183 (June 2022) and 17,353 (Feb. 1, 2023).
Crucial support is at at 200 DMA zone of 17,320-17,340 and a breakdown below this zone could attract further selling pressure towards the 17,000 zone. While resistance on the upside is at 17,650-17,700 zone. Above the 17,700 levels, the index can revisit 17,920-17,950 again on the upside. Based on the option chain data, the Nifty 50 is expected to trade in a broader range of 17,050-17,680.
While the index is expected to trade within a negative bias on account of the above mentioned factors, leading to deteriorating macroeconomic environment, traders and investors should adopt a stock-specific approach and should look to add quality stocks which are currently outperforming the markets. One should prefer quality large caps and high-quality mid caps, while staying away from small caps.
Based on the rollover analysis and chart set-up, stocks from the mid-cap IT, defence and central public sector enterprises segments are expected to outperform, with long build-up visible in select names such as Ultratech Cement Ltd., Oil and Natural Gas Corp., Siemens Ltd., Indraprastha Gas Ltd. and Polycab India Ltd. A short build-up is being witnessed in banking, oil & gas, metals, auto and real estate sectors with stocks like Mahindra & Mahindra Ltd., JSW Steel Ltd., Jindal Steel and Power Ltd., Hindalco Industries Ltd., Hindustan Petroleum Corp., Godrej Properties Ltd., DLF Ltd. and Canara Bank expected to underperform.
'Short Positions Created In February Series Have Been Rolled Over'
Gaurav Bissa, vice president, Incred Equity
The Nifty has witnessed lower rolls at 73% as compared to the three-month average of 79%. However, the total open interest base has increased from 11.6 million shares to 15.4 million shares, which suggests that the short positions which were created during February series have been rolled over. That implies the index may continue to witness pressure at higher levels and trade with a negative bias. The index has seen intense writing in out-of-the-money call options, which started at 18,000 and slowly transitioned toward 17,700 and 17,600 strikes. The fact that Nifty has broken critical support levels have added to confidence of call writers. As long as the index trades below 17,600, it will have a possibility of attempting 17,350 levels, which once broken can result in further pressure. A close above 17,600 can result in short-term stability and can push the index slightly higher.
Bank Nifty rollover stands at 84% compared to its three-month average of 86%. An in-line rollover is an indication that more short positions have got rolled in Bank Nifty. In absolute terms, Bank Nifty will start the expiry with 2.80 million shares compared to its average of 2.57 million, which is also on a higher note. Bank Nifty was the main reason behind the weakness in Nifty since last few weeks.
The index retested the breakdown level of 41,800 and continued its downward journey. Many of the private as well as public sector banks witnessed similar pressure, which ensured any rise was met with fresh shorting opportunities. Bank Nifty has key support at 39,400 spot levels which if broken can result in increased pressure. Till this level is not breached, the index can witness a temporary bounce till 41,000-41,500 levels.