Monthly inflow from FIIs now negative after consistent flow for 5 months; midcaps outperform Nifty 50

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After experiencing consistent positive flow for 5 consecutive months, the monthly inflow from FIIs has now become negative. FII net flow has been negative for 11 consecutive days, taking it to the lowest point since the final week of April. The weekly net flow of FIIs, amounting to Rs. 3545.6 Cr., has dropped by 15% compared to the previous week. FII’s long positions in index futures meanwhile have dipped to 43.9%, when compared to 30day average of 63.8%.

Among the single stock futures, over 31% witnessed long addition, while 34% exhibited short covering over the week, suggesting that despite the carnage, the bias in the segment has remained positive. In fact, though Nifty50 fell below its 20d MA, more than 60% of the NSE500 stocks are still above 20d MA, and over 83% of them are also above 200d MA. At the start of last week, Nifty 50 was trading around 4% above its 50DMA, while the midcap index was trading 8.5% above its 50DMA. After carnage and the subsequent pullback, Nifty 50 is about 3% above the 50 DMA, while the midcap index continues to trade above 8%, suggesting that midcaps continue to fetch higher premiums, and traders have been unwilling to let go off their positions. At least not yet. It is only when the benchmark indices break the key MAs that midcaps start to feel the heat. So, until then expect risk on approach to continue in mid and small caps.

Ever since coming tantalisingly close to the 20k mark, Nifty has been on a clear down trend for the last 10 days or so. However, even as the trend leaned lower, every third or fourth day during this phase had a positive close, keeping Nifty not far from 19700, allowing traders to be risk-on. However, last week’s fall broke and held below the 20day MA for the first time since the recent uptrend began in March 2023. This ushered in panic, exacerbating the fall. Friday’s retracement is on anticipated lines, but is still within the bearish construct, even though we are now back inside a declining trendline channel, which stands a fair chance of evolving into a bullish flag. Such hopes will encourage positive upticks next week as well. We feel Nifty is likely to clear the 19550 barrier will some struggle, but expect bears to re group once inside the 19600-670 band. We would hence wait for a break above the 19800 region to climb back onto the 20600 trajectory. Alternatively, a slippage back below 19450 could set our eyes on 19139-18900, but the chances of a collapse looks low for next week. Sensex meanwhile, has also formed reversal candle in short periodicities, which retains optimism for next week. But daily candles show that significant challenges lie ahead, with 66000 expected to mount serious challenge to upside prospects.

First published in Financial Express

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