Hopes of Nifty’s relief rally continuing, aiming for 17800; India VIX fails to show indications towards major collapse


A revisit and break of budget low last week pushed fear to its nadir last week. One can’t blame the investors as Nifty had also closed below the 200 DMA, a key moving average tracked by many, and a break below which is often considered a long term downtrend signal. But, history tells us that markets often bounce back when fear reaches an extreme. The recovery push had a few supportive elements though.

Firstly, while more than 56% of NSE 500 stocks were trading below 200 DMA last week, Bank Nifty and its constituents were trading well above their respective 200 DMAs. Secondly, VIX failed to show indications towards major collapse, and was either steady on declining on most days and failing to see sustained rise in VIX even on days of high volatility. In other words, despite the gloom, a collapse was never on the cards. Additionally, recovery in Adani group stocks lifted broad based sentiments, helping the recovery push on Friday.

A mid-week break by way of Holi will hasten time decay and would affect the flow for option traders, for 9th March expiry. Yet, we will open the week, with hopes of continuation in the relief rally aiming 17,800-18,250 and 43,000 in Nifty and Bank Nifty respectively as the ideal endpoint, with downside markers placed at 17,500 and 40,900. Having said that, given the event risks ahead, we expect questions to be asked on approach to 17,740 and 41,700 for Nifty and Bank Nifty respectively, in the latter part of the week.

Now let us look at how sectors and stocks are poised towards joining the recovery rally as indicated by indices. For this we looked at the number of stocks that had breached previous Friday’s peak, close to where the Nifty is now, and from where the sharp break down had earlier unfolded. While only 38% of Nifty 50 stocks breached the 24 Feb’s peaks, 59% of midcap 100 stocks have breached their respective peaks on the said date. Among stocks banks lead the charge with almost all of them above this benchmark, while auto and manufacturing have the fewest number of stocks breaching the same.

First published in Financial Express


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