By Yesha Shah, Head of Equity Research, Samco Securities.

Bulls tightened their grip on the Indian markets in this shortened week. While it appears that markets are regaining lost ground, FIIs have continued to sell, albeit at a slower pace.

According to NSDL data, FIIs have been net sellers in the Indian stock market for more than 5 months in a row now. Such a sell-off was previously observed during the 2008 global financial crisis, when FIIs were net sellers for about 7 months.

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In fact, since the inception of the current budget, FIIs have withdrawn in the amount of about Rs 2.75 lakh crore in the equity treasury segment, which is significantly higher than the cumulative money collected after the pandemic, i.e. between 20 May and 21 March. has flown in.

Our markets have certainly become relatively resilient thanks to the unshakable confidence of domestic investors who have relentlessly cushioned the intense sell-off from foreign investors.

To back this up, banks, financial services and IT sectors saw the highest FII sales in absolute terms in the past 6 months. Despite this, Nifty Bank and Nifty IT have only fallen by 3.66% and 0.01% in the past 6 months.

The main factors driving FIIs to dump their Indian investments were the expensive valuations of Indian companies and the anticipation of a taper tantrum 2.0. When the war started, this discharge only intensified.

From where we are now, valuations in Indian markets have softened and geopolitical tensions are easing as well. The Fed’s phasing out of bond purchases is finally coming to an end, and with more clarity on the timetable for key rate hikes, extravagant volatility is expected to ease as well.

Moreover, given India’s structural attractiveness among emerging markets and the possibility that some of Russia’s equity allocations in foreign portfolios will come to India, it is possible that FIIs will make a comeback sooner or later.

This, along with the already solid domestic participation, could see bulls regain control of the markets.

Event of the week

The US Fed announced a 0.25% hike in its key rate for the first time in three years to combat the worst inflation since the 1970s. It also forecast that its key rate would be between 1.75% and 2% by the end of the year, rising to around 2.8% in 2023, the highest level since March 2008.

The Fed hopes this rate hike will keep inflation in check without sending the economy into a tailspin. While markets around the world are ecstatic that the Fed’s decision removed uncertainty, the measures announced could have a significant impact on the RBI ahead of the MPC meeting in early April.

Unlike the Fed, the RBI has been unexpectedly mild so far. In addition, domestic retail inflation has not yet materially crossed the RBI’s comfort zone, which can be partly attributed to the fact that rising commodity prices have not yet been fully passed on.

Given the changing inflation-demand dynamics and the spillover effects of the war, all eyes are now on whether the RBI will join the chorus and change its stance in April.

Technical outlook

The Nifty50 Index closed on a bullish note for the second week in a row, successfully holding above the crucial resistance of 16,800 as well as the 20-week EMA. Until Nifty does not close below 16,800, the bullish trend is likely to continue.

While nearly all sector indices ended in the green, Nifty small-cap and mid-cap indices underperformed. Global indices also recovered, but if there is no buying at higher levels globally, Indian indices momentum could also slow down.

Against this background, we recommend that traders maintain a bullish bias and only take new long positions on dips. Immediate support and resistance are now placed at the 16,600 and 17,500 levels.

Expectations for the week

With no major domestic event planned, Indian markets will be led by their global counterparts for the coming week. The situation in Russia-Ukraine will be closely monitored.

Because crude oil plays such a critical role in determining the fate of Indian macros, crude oil price movements will also be closely monitored. In addition, DII’s buying momentum is likely to continue as the year-end draws to a close as allocations to ELSS funds have increased.

In the absence of a positive trigger, market movements are expected to remain in range and investors should continue to invest in selective, fundamentally resilient stocks. The Nifty50 closed at 17,287 points this week, up 3.95%.

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