A close above 26,000 on Friday appears to have given the much needed confirmation that Nifty is on the path of a sustainable uptrend. How far can we take this on face value, or do we need to look at the undercurrents as well to check how broad based this trend is, so that there will be more legs to the rally?
One of the reasons for this doubt is that Nifty’s recent rise has been courtesy just a handful of its constituents. Another reason is that what began as a Nifty-centred uptrend never quite translated into a small- and midcap rally as hoped, with the lag continuing to persist.
MF inflows in equity schemes encouraging.
While the lag between large- and small cap stocks persists, that has not dissuaded money from flowing into such stocks. In an encouraging signal, November’s AMFI data shows that small-cap-themed mutual fund schemes attracted Rs 4,407 crores, when compared to just Rs 1,640 crores into large caps. It follows that retail money has begun to take a risk-on approach, even as FIIs continue to sell.
More small caps on the ascent
Friday’s positive close evoked both hope and concern, as previous Friday had also closed similarly in the green, only to give away all the gains in the subsequent days. What appears different this time is the number of small and midcap constituents that have appeared to have pushed ahead. While 34% of stocks in Midcap 150 Index and and 25% of stocks in Small Cap 250 Index closed above their respective 20-day SMA on the first Friday of December, 40% and 32% of mid and small cap stocks closed above the benchmark this Friday, suggesting that momentum is higher this time.
FII bias turns negative
With FIIs cutting their index future longs by 12.8%, their long-to-short ratio has dipped to 10, extinguishing whatever little signs that were beginning to be visible along a potential short covering spree and consequent uptrend on the benchmark indices.
The indices have been rising without needing help from such short covering so far, but the build up in index future shorts and the even sharper liquidation in index future longs, whose positions have fallen to the lowest since October, are worrisome signals, especially with the indices at record peaks.
PSU Bank Index: Signs of weakness ahead
The Nifty PSU Bank index has displayed fatigue over the past month, with selling pressure emerging after last week’s breakdown of its rising trendline. The index now trades below the 20-day simple moving average, while weekly charts show a bearish Parabolic SAR breakout, pointing to potential downside in the weeks ahead.
Derivative data supports this view: nearly 60% of near-OTM call strikes saw short build-ups, and 57% of stock futures added shorts week-on-week, indicating traders are positioning for further declines.
On the stock front, SBI, Bank of Baroda, PNB, Canara Bank, and Indian Bank have formed strong bearish reversal patterns on the weekly scale, which could drag the index toward the 8,000–7,800 zone in the short to medium-term.
Realty Index: Attempting a pullback, but vulnerable
The Nifty Realty Index has faced profit-booking since November and is now attempting a rebound. Despite this, it remains well below its 20-, 50-, and 100-day moving averages. On the daily chart, the Stochastic Momentum Index crossing above zero signals short-term positivity, with potential upside toward 800–815. However, weekly charts remain weak after a recent parallel support break.
Derivative trends are mixed: while Friday saw long additions in futures, overall weekly positioning still favours shorts, limiting upside potential. Stock-specific moves also lean cautious — names like DLF, Lodha, Godrej Properties, Oberoi Realty, Prestige, and Brigade may extend the current rebound, but sustainability looks doubtful.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
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