Markets recover after worst fall in previous week

Equity markets bounced back this week after their worst fall (-5.6%) in the previous week. Nifty/Sensex gained 405/1368 points (+2.7% each) to close the week at 15,699/52,728 levels.

Broader market too ended the week in positive territory with Midcap 100 /Smallcap 100 up +2.1%/+1.6% during the week. Except for metals and energy sector, all others gained in the range of 1%-7%. Auto, FMCG, IT and banking sectors were the top gainers.

Foreign institutional investors (FII) sold equities worth Rs 9,200 crore (data till Thursday) while domestic institutional investors (DII) bought Rs 9,500 crore (data till Thursday) during the week.

Global markets eased by the end of the week after the Fed chair Powell made a strong stance to bring down 40 year high inflation in phased manner through steep rate hikes which was in line with market sentiments. However, he did not rule out the possibility of a recession which made investors cautious on future outlook.

Crude prices corrected from recent highs by ~16% bringing some much needed relief.

On the domestic side, markets recovered from lower levels in line with positive global cues. Short covering and value buying in beaten down sectors / stocks provided some momentum to the market. Further, RBI’s MPC meeting minutes highlighted that it targets to bring down inflation to 4% by FY24 after moderating to 6% by Q4FY23, while revival of economic activity remains steady and is gaining traction.

Also, with monsoons progressing well rainfall deficit narrowed to 2% from 32%, last week. Further, sectors like Auto, FMCG were performing well on account of falling crude prices.

Going forward, while we expect market volatility to continue next week, intermittent bouts of relief rally can’t be ruled out. From a short term trading point of view – the market set up continues to remain ‘Sell on rise’ with Nifty approaching its strong resistance around the 16,000 mark.

Concerns of global recession, monetary tightening as well as depreciating rupee would keep the upside limited in our view. The monthly derivatives expiry on Thursday would also add to the volatility. Key data that the market would watch out for in next week would include GDP data for US & UK, manufacturing PMI for China and CPI for Eurozone.

(The writer is the Head – Retail Research, Motilal Oswal Financial Services Limited)

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