It was the third consecutive week of gain for the Indian equity markets thanks to the recovery in global markets, cool off in US bond yields and Dollar Index however profit booking from higher levels was seen across the globe on Friday.
RBI policy, global macro numbers, and crude oil prices will set the trend for this week.
The outcome of the RBI policy will be announced on the June 8, and it will be important to listen to RBI commentary as a rate hike is imminent. Our IIP data will be released on June 10, after market hours.
On the global front, US jobless claim on Thursday and CPI numbers on Friday will be important for the direction of global markets.
Apart from this, crude is continuing its northward journey and if it doesn't cool off then it may hurt the sentiment of equity markets.
FIIs are still in selling mode however the momentum has slowed down but there is a risk of further selling if the Rupee weakens due to a rally in crude oil prices.
Technically, the Nifty is facing resistance around the 16800 level after a smart pullback rally of more than 1,000 points.
On the downside, 16,400-16,350 is a critical demand zone that bulls need to protect to maintain the strength in the market otherwise the overall downtrend may get momentum where 16,000-15,700 will be the next support area. On the upside, 16,800-17,000 will remain a key supply zone.
Banknifty is struggling to sustain above the psychological level of 36000 however 34,800-34,500 is a critical demand zone where we can expect bounceback while below 34500, weakness may extend towards 34,000/33,500 levels.
If we look at the derivative data the long exposure of FIIs in the index future is placed at 40 percent while the put-call ratio is sitting at 0.97, both are indicating some bearishness.
(Santosh Meena is Head of Research, Swastika Investmart Ltd.)