Union Budget to be a key trigger for stock markets amid global volatility

The Union Budget will be a key trigger for the Indian market amid global volatility.

The roller coaster ride continued in the Indian equity markets and it was the second consecutive week of a deep cut on the back of extreme volatility in global markets and relentless selling by FIIs. The global weakness can be attributed to the hawkish US Fed and rising geopolitical tension.

The major pain was seen in technologies stocks as globally there is a sharp sell-off in growth stocks amid fear of a sharp rise in US interest rates while banking stocks outperformed on the back of strong earnings. Relentless selling by FIIs was a key talking point because they sold worth Rs 22, 000 crore last week. However, DIIs tried to compensate 50 percent of FIIs' selling as they bought around Rs 11,000 crore in the cash market. It will be interesting to see how FIIs will behave going forward after a period of massive selling.

The coming week is going to be very important and extremely volatile on the back of the Union Budget. However, the good part this time is that the market is heading to the Budget on a very light note and there is a high probability of a post-Budget rally. A similar trend was visible last year where the market witnessed a pre-Budget sell-off and then there was a post-Budget rally.

Other than the Budget, global cues will be very important where global markets are trying to digest rising interest rate scenario but geopolitical uncertainties is another major concern. The rising dollar index and rising crude oil prices are other issues for emerging markets like India. We are in the middle of the Q3 earning session and so far earning session remains good while we have lots of important earnings lined up next week.

Technically, Nifty is respecting a very strong demand zone of 16,800-16,600 where 200-DMA is currently placed at 16,640 level. However 17,400-17,800 is a critical supply zone as a cluster of important moving averages. A move above 17,800 can lead to a big short-covering rally in the market for a move towards fresh all-time highs. There is a high probability that 16,800-16,600 has become floor for the Nifty for time being and the market is ready to move higher, but if Nifty slips below 16,600 level then things can become ugly.

Bank Nifty is looking strong as it is trading above its all-important moving averages. However 38,800-39,100 is an immediate resistance zone; above this, we can expect a short-covering rally towards 40,000/41,000 levels. On the downside, 37,500 is immediate support while 36,500-36,000 is a critical support zone.

If we look at the derivative data, then FIIs' long exposure in the index future stands at 28 percent which is in the extreme oversold zone whereas PCR is sitting at 0.92 level is also in oversold territory.

(The writer is Head of Research, Swastika Investmart Ltd.)

Published on: Saturday, January 29, 2022, 10:42 PM IST