A broad market decline has dulled the enthusiasm that was prevalent as we went in at the start of last week. Though we have had a close above the psychological mark of 26000, and the 20-day SMA appears to provide support, the sharp downside close on Friday leaves too much work for the last week of the year, which is usually associated with low participation.
But Friday’s decline also comes as a welcome trend, in contrast to the strong close seen in the previous few Fridays, which incidentally led to profit booking in the week that followed. Towards this end, we have the advantage of going in with several stocks at a better bargain than the previous week. Let us now look at the broad market signals.
Small caps slow down
For the last two weeks, we had been pointing at the small caps, quickly narrowing the performance gap between them and the large caps. However, with Nifty 50 stalling near a record peak last week, a profit-booking spree ensued that did not leave small caps untouched. Consequently, the pullback that unfolded midweek dragged stocks across the broad market.
While the Nifty 50 index is within touching distance of its 20-day SMA, the Nifty Smallcap 250 index is almost 1% above its 20-day SMA. However, only about 47% of the constituents of the small-cap 250 index are trading above their respective 20-day SMA, in contrast to the 57% seen midweek. This does not appear to be an outright reversal but does certainly appear as a pause.
FIIs: Negative bias continues
FIIs persisted with the negative stance, and it was not a surprise, given that it has been the theme lately, while Nifty also closed in the red last week. Additionally, FII’s percentage of long positions in its Index future portfolio is at 11.1, which, while near a record low, leaves no new signals.
However, despite reducing longs and boosting shorts in the index future segment on Friday, a different perspective is seen when viewed on a week-on-week basis. At present, FIIs hold 19,756 contracts as index future longs, a 16% week-on-week increase, while 1,58,909 contracts are held as shorts in the index future segment, a 9.6% decline when viewed on a week-on-week basis. This may be viewed as a subtle sign towards easing of FII negative view.
Metal Index: Record high with strong bullish momentum
The Nifty Metal Index continues its firm uptrend, ending the week at a fresh all-time high. A bullish Marubozu candle backed by strong volumes highlights active buying interest. The bullish crossover of the 20DMA above the 50DMA further reinforces expectations of continued upside in the coming sessions.
On the derivatives side, sentiment remains constructive, with 70% of stock futures showing short covering on Friday and 90% on a weekly basis. Beyond steel names, notable strength was seen in Hindustan Zinc, Vedanta, Hindalco Industries, NMDC, National Aluminium, and Hindustan Copper, which are likely to steer the index toward the 11,000 mark in the near term.
Realty Index: Base formation signals potential pullback
The Nifty Realty Index, after a profit-booking phase since November, now appears to be stabilising near the horizontal support zone of 466. Diminished volumes at this level and the appearance of multiple Doji candles in recent weeks suggest a possible rebound.
A decisive move above the range resistance at 891 could pave the way for an advance toward 915–920, and eventually 950 over the medium term. Derivatives data support this outlook, with around 80% of stock futures showing short covering on a weekly basis.
Among the constituents, DLF, Lodha, Godrej Properties, Oberoi Realty, Phoenix Mills, Brigade, and Sobha have all displayed volume contraction on weekly charts, pointing to limited selling pressure and strengthening the case for a recovery.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
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