By Anand James
FIIs switch sides
While a fall was dawning on both Nifty and Bank Nifty at the start of last week, we are now stepping into this week with less clarity about the momentum of further fall. One of the key flags signalling an impending fall was FIIs being extremely long heavy on their index future positions.
That extreme is now gone, with the long proportion plummeting to mid 50s from 82% just a week back. This is not only because FIIs reduced their index longs by 8% on Friday, also because their index shorts were boosted by 31% on the same day, suggesting that FIIs have positioned for more falls.
Nifty eyes recovery, being at 200 DMA, but sustainability doubted
At Least 75% of the stocks in the major indices like Nifty 500, Nifty 50, Nifty Bank, Midcap 150, Small cap 250 as well as F&O segment are trading below their respective 10 day SMA. Consumer durables, FMCG and metal index constituents so far have shown more resilience, but financials often seen as a proxy to directional moves, have cracked.
While Nifty 50 is now near its 200 day SMA, giving some hopes of a recovery swing sometime early next week, sustainability is doubted, given the fact that only 43% of broader market stocks as represented by Nifty 500 index are trading above 50 day SMA, suggesting that the downtrend may have more legs. Reliance holds key cards, as it has broken 50 and 200 day SMAs much earlier and positioned for more falls, but we will watch 2720 for signs of exhaustion in ongoing sell off.
Sector cues
IT: Infy did the heavy lifting for the index while the rest of the majors including TCS, Hcltech, Wipro and LTIM saw selling pressure. As TCS and INFY will be coming out with their Q2 numbers next week, IT pack is moving into the week with 42% of the stocks witnessing short buildup on a WoW basis.
Number of stocks trading above the 20DMA has come down to 20% this week from 50% last week. Meanwhile, even as Nifty is trading near its 50 DMA, 40% of Nifty IT constituents have already slipped below their respective 50 DMAs.
On the other hand, Nifty Pharma has been consistently gaining since May 2023 and the upside looks to be losing steam. Since May 2023, Nifty pharma saw around 30-32% upside twice followed by 7% correction and a similar 32% upside is now staring at a 7% correction.
We have seen just around 3% correction from the top and another 4% dip should be expected. MACD in the weekly timeframe is turning lower and is closing in on a signal line crossover from above.
On the F&O side, 82% of the stocks have either added shorts or saw Longs being unwound on a weekly basis. Expect stocks like Auropharma, Biocon, Glenmark, Sunpharma and Cipla to see some more declines.
But, even though the usual defensive plays are yet to get into action, consumer durables and metals appear to be resilient so far.
(About The Author: Anand James is the Chief Market Strategist at Geojit Financial Services.)
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