Indian markets witnessed a strong rally for a second consecutive week thanks to easing geopolitical tension, a fall in crude oil prices, the inline outcome of the US Fed meeting, and shortcovering.
FIIs who were selling relentlessly for the last five months came back last week with some buying. It will be interesting to see how the market will perform when they continue their buying.
In the last 5 months, they have sold more than 2.3 lakh crore in the Indian equity market which is their higher-ever selling. Earlier, their highest selling was at the time of the global financial crisis in 2008 which was around 1.3 lakhcrore.
The interesting point here is that in 2008, Nifty and Sensex had corrected 60-65 percent due to selling of 1.3 lakh crore by them; but this time, Nifty and Sensex only corrected around 15 percent despite much higher selling by FIIs.
No longer fully dependent on FIIs flows
Domestic money shows strong resilience this time and we are no longer fully dependent on FIIs' flows. Our markets are in a much better shape compared to most of the emerging markets. We have witnessed a strong rally from lower levels. Therefore, there might be some feeling of missing out among FIIs and they may come back aggressively in the Indian markets that may fuel a further rally in our market.
The market has already factored in that the Russia-Ukraine issue may end soon; however, news flows related to this issue may continue to cause some volatility in the market.
Technically, Nifty is giving a proper follow-up of bullish engulfing candlestick formation on weekly chart. It managed to close above its 200-DMA and 50-DMA, however 100-DMA of 17,380 is an immediate hurdle. Above this, we can expect a further strength towards 17,600/17,800-levels. On the downside, 17,200 should act as an immediate support level while 200-DMA of 17,000 will be a strong base at any pullback.
Banknifty also witnessed a strong pullback from lower levels. However, 36,700-37,300 is a critical resistance area and if it manages to take out this area then we can expect a short-covering rally towards 38,000/38,500 levels. On the downside, 36,000 is immediate support, while 35,500/35,000 are the next support levels.
If we look at the derivative data, then FIIs' long exposure in the index future has moved to 57 percent and the put-call ratio has jumped to 1.33 level--both are indicating bullish positioning of the market. If we look at the OI distribution. then put writers are showing strong confidence at the 17,000 level.
(Santosh Meena is Head of Research, Swastika Investmart Ltd.)