Nifty at record peak, but smaller caps continue to lag
We will go in this week, retaining our expectations towards continued rise targeting 26460-550 initially followed by 26900-27200. However, as maintained last week, we continue to feel that the smaller cap stocks are still lagging behind Nifty 50, whose recent rise has incidentally been driven by only a handful of constituents. Let us see if there are signs from the broader market.
Smaller cap stock yet to join the party
In a strong reminder of the underperformance of the small and mid cap stocks, when compared to Nifty 50, less than only 35% of Nifty 500 stocks ended the week above their respective 10 day SMA, while Nifty 50 had 60% of its constituents doing so. Even worse, just 25% of the small cap index stocks closed above their middle bollinger band, while 62% of Nifty constituents managed to do so. Additionally, this metric showed a decline only among the small cap stocks through the week, while mid and large caps ended the week on a high, after early slump. This points to a risk averse mode which might trickle down to larger caps as well, as the week progresses. In other words, the risk on approach that usually comes through in strong up trends, is very much missing.
FIIs’ shortcovering cools off as feared.
As feared last week, the rise in long short ratio has eased off just as we pointed out how it did so soon after October expiry. We had also noted then that the difference this time is that the short positions were at the lowest since early July. Incidentally, short positions have begun to edge up, while long positions have started to ease again. This is not an encouraging sign with Nifty at record peak.
Nifty Bank: Short-Term Upside Amid Signs of Fatigue
Nifty Bank has been in a reversal phase since September, but the weekly chart now reflects a Hanging Man candlestick pattern, hinting at hesitation in the prevailing uptrend. The weekly RSI is nearing overbought levels, reinforcing concerns of near-term exhaustion.
Even so, the week closed with a bullish Marubozu candle on the daily chart, pointing to potential upside at the start of next week. That said, such strength is likely to invite selling pressure, opening the door for a corrective move toward 57,000 in the weeks ahead.
Derivatives data remains mixed—while 75% of stocks saw long additions on Friday, broader weekly trends suggest uncertainty. Stock-specific gains may initially be led by HDFC Bank, SBI, Kotak Bank, and ICICI Bank, though resistance could surface later in the week. A prudent approach would be to capitalize on early strength while staying cautious in the latter half.
Nifty Financial Services: Early Momentum, But Warning Signals
The Nifty Financial Services index has been recovering since September, yet recent price action calls for caution. A Hanging Man formation on both weekly and monthly charts signals hesitation in the rally, while the RSI nearing overbought territory raises the risk of short-term fatigue.
Despite these warning signs, the index ended the week with a strong bullish daily candle, holding above key moving averages—suggesting some upside early next week. However, this upswing is likely to be followed by profit booking, potentially leading to a corrective slide toward 27,500–27,000 in the coming weeks.
On the derivatives front, Friday saw long build-ups in more than half of the stocks, though the overall weekly trend remains unclear. Early gains may be driven by banking majors, the Bajaj twins, HDFC Life, PFC, and REC Ltd, but selling pressure and resistance are likely to emerge as the week progresses.
First published in Financial Express