We started last week pointing at the seasonality advantage that March holds, in a frantic search for a glimmer of hope amidst the sell on rallies mode that had persisted until then. One of the silver linings was that since 2016, when the Nifty Midcap150 and Smallcap250 indices experienced two consecutive months of decline, the following month saw an average return of 8%, more than 70% of the time. Despite such hopes, last week saw Nifty complete a 10 consecutive day decline, the longest losing streak since inception in 1996. Fortunately, such an extreme scenario ended up triggering a mean reversion move that would swing over 600 points on the Nifty attracting a broad-based buying interest.
FIIs yet to budge
The concentrated holding of index future shorts continues to persist despite the large jump in Nifty last week. This reminds us of the same stubborn persistence with index short positions despite a 1,000 point jump after the 27th January. Incidentally, after this rise Nifty would fall about 2,000 points, vindicating FII’s short index preference. The present persistence with shorts cautions us of such a turn of events. Further, FIIs continue to show a preference towards puts over calls, on both the long as well as the short side. They hold 8.3L contracts as index put longs as opposed to 6.5L contracts as index call longs, while they hold 5.2L contracts and 4.7L contracts as index put and call shorts respectively.
FMCG to sweeten
After the rising channel break in November 2024, the index has been falling and has erased around 13%. However, the daily charts have seen reversal candle patterns and the short-term momentum indicator MACD has crossed the signal line from below and a Piercing candle pattern in the weekly timeframe is hinting at possible short-term upside in coming weeks. We expect the index to move towards 52,600 and thereafter 53,250 led by stocks like Hindustan Unilever, ITC, VBL, Godrej Consumer Products, Dabur, Tata Consumer, United Spirits, Marico and Colgate Palmolive.
A quick bounce possible in Realty
The realty index has fallen close to 30% since December 2024 and has corrected close to the Fibonacci 50% level of 766. We have seen a weekly reversal candle along with weekly MACD histogram showing exhaustion hinting at a possible reversal. We expect the index to see some profit booking initially next week but will gain strength later in the week and push the index towards 860 to 940 levels in the next few weeks led by stocks like DLF, Lodha, Godrej Properties, Oberoi Realty, Phoenix Ltd, Prestige and Brigade.
Bank Nifty yet to see traction
Bank Nifty appeared quite a passive spectator even as Nifty and SMIDs made merry in a roaring comeback of sorts last week. One of the talking points in this context was that, Bank Nifty had started last week with 5% less open positions than comparable period in the previous expiry. Also, Bank Nifty’s fall was just around 1% compared to Nifty’s 3% last expiry. Incidentally, this also meant that Bank Nifty mostly held above January low, even as Nifty sank over 4% below January low. This meant that Bank Nifty was swinging off a much higher base than Nifty, and that translated into less traction on the way up, even as short covering muscled Nifty up.
Nifty outlook
There is no doubt that, the moment Nifty turned higher last week without testing 21,851, the 23% fibo which we had pencilled in as a major pivot last week, the odds of a major relief rally spiked and with it the prospects of 23,000 too. Standard deviation studies agree with the expansion in upsides prospects, pointing to even 23,500.
That said, it must be noted that we are bouncing off from a near record low RSI level. Historically, the majority of such pull back attempts from sub 25 RSI levels had also seen a reversal soon, wiping off the gains completely. This prompts us to look for a W-shaped reversal, that is likely to see renewed selling without seeing 23,000 or shortly after 23,000, followed by a retest or break of 22,000 again, before another sustainable uptrend originates.
Hence, brace for a major offensive from bears soon.
First published in Financial Express
