The Bihar election results provided an ideal setupfor bulls to regroup and lend momentum to green shoots that were seen earlier in the week. While US equities found their mojo back on sighting an end to the government shutdown, Indian equities were boosted by a record low CPI reading. However, even as positive vibes added on, FIIs remained reluctant about joining the party in either the cash or the futures market.
No sign of FIIs yet
Towards the end of October, hopes of FIIs pushing markets higher were high as the long-short ratio of their holdings among index futures started rising. But November, so far, has not shown any further indications towards that end, with the long-short ratio declining to 11.2, the lowest so far in November.
This has come about as a result of an increase in short positions, to go with the decrease in long positions. At 24,415 levels, index future long positions by FIIs have dwindled by more than half from October-end levels.
Incidentally, on Friday, while FIIs reduced their index future long positions by 0.56%, index future short positions were boosted by over 5%. This positioning is important, having come on a day when Nifty rose over 150 points from the day’s lows.
Broader market cues
In support to the concern that Friday’s sharp rise was more about index heavy weights rather than broader market, only 44% and 37% constituents of the mid and small cap indices respectively, closed above their 10-day SMA on Friday, in contrast to 63% of Nifty constituents doing so. The performance with reference to 20- and 50-day SMAs are no different.
This confirms that the lag between the large and smaller cap stocks that has been visible lately continues to persist, with few indications that the discrepancy might straighten out.
Bank Nifty Outlook
At 83%, Bank Nifty has the largest number of constituents above the middle Bollinger Band among the major sectoral indices. Also, it is only behind Auto in having the highest number of constituents closing above their respective 10 day SMA on last Friday.
The last time the Bank Nifty Index approached the upper bollinger band was on 20th of October. On this instance, after a couple of days staying near this extremity, a 2% decline ensued.
We are now back at the upper band again, but this time, oscillators are favouring a continuation of the uptrend, aiming for 59,700-60,300 or more. Alternatively, an inability to stay above the 58,577 peak of October, a reversal, may be expected.
Nifty Outlook
Nifty is at a crucial juncture. Only a few days back, it was undergoing a collapse, only to reverse from the 20-day SMA, and register back-to-back green candles through the week, before seeing red on Thursday. Incidentally Friday’s opening gave signals of an evening star formation, indicating a reversal sign, but the weakness fizzled out in the second half, lifting Nifty higher by 150 points from the day’s lows.
That the smaller cap stocks are not enjoying such a turn in fortunes in quick succession is raising fears that the ongoing positivity is an index event and is not backed by broader market positivity. Among broader market participants, strength was noted in Auto, FMCG, Oil & Gas and Bank Nifty.
Apart from Bank Nifty, in which strength was shown among most of the stocks consistently over the last fortnight, the rise in constituents contributing to the push higher in their indices was more of a midweek phenomenon. This casts doubts on the sustainability of broader market performance in the coming week. For now, patterns and oscillators continue to favour continuation of the uptrend, aiming for 26130-26550, but an inability to stay above 25,130 after an early push higher in the coming week or a direct fall below 25,740, could signal a loss in momentum.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
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