China Bull in Nifty Shop

Nifty up after five straight weeks of losses. What’s Next?

The Nifty bulls fought back to end the week on a positive note. After five straight weeks of losses, the market closed in the green, witnessing broad-based buying. Meanwhile, China cut its 5-year loan prime rate and lifted the market sentiments. Was this a Nifty bull from China or a relief rally with a tradeable bounce?

On Friday, the Nifty was up 456.8 points or 2.89 per cent, which was the best daily gain in the last three months.

The Nifty closed at 16266.2, up about 484 points or 3.07 per cent during the week. Most of the weekly gains are from Friday market action, the day when China cut its 5-year loan prime rate. Similarly, the Bank Nifty was also up by 1155 points or 3.49 per cent during the week. Though the largest IPO–LIC failed to entice the investors, the LIC shares were listed at a discount of 8 per cent.

As noted in the earlier blog, the market was trading in the oversold territory. RSI and MACAD, both the indicators were showing low numbers and the possibility of a bounce-back. 

State of Economy & Concerns

The economic headline news was China cutting its 5-year loan prime rate by 15bps to boost its covid hit economy. As a result, this outlier action lifted the market sentiments in Asia. Inflation is rising steadily in India as the April wholesale inflation (WPI) raised to an all-time high of 15.08%. Similarly, April inflation based on the Consumer Price Index (CPI) surged to 7.79 per cent. Now the next round of rate hikes is almost a certainty.

Structurally, nothing major changed during the week. The concerns of last week remain as is, which are:

• Geopolitical- Russia Ukraine War 
• Rising Inflation
• Fed and RBI tightening policy
• Rising Interest Rates 
• FII selling from Emerging Markets
• Historically Summer volatility season

FIIs and Volatility

As has been the trend for the past couple of months, the FIIs remained net sellers during the week. Meanwhile, the volatility index India Vix closed at 23.10, softened by 0.39 points or 1.66 per cent week over week. Overall, the volatility remained at elevated levels during the week.

Nifty Market breadth

The market breadth remained in favour of the advancing shares throughout the week. The weekly advance-declined ratio was a healthy 1.57.

Top Losers of the Week

The other notable losers of the week were Shree Cement down 2.50 per cent, HCL Tech down 2.19 per cent, Wipro down 1.92 per cent, BPCL down 1.19per cent, and UltraTech Cement down 1.10 per cent. Further, out of the top ten losers in Nifty 50, five are from the IT sector. View the list of all the Nifty 50 contributors.

Top Gainers of the Week

The other notable gainers of the week were Reliance up 8.12 per cent, ITC up 8.11 per cent, Maruti up 6.83 per cent, Tata Steel up 6.75 per cent, and HUL up 6.02 per cent.

The Auto, FMCG and Metal stocks are making up most of the top ten gainers list. The shares of Power Grid, ONGC, NTPC, and Coal India are gainers since the beginning of the year. Check more details in our blog Nifty–Top Gainers and Losers.

Nifty Sectors and Broader Indices

All major sectors, except for Nifty IT, closed in green because of broad based buying.

FMCG, Pharma, and Metal staged a decent come back and closed in green, after being down for the previous two weeks. The IT sector is down for the fourth week in a row, showing weakness because of geopolitical tensions and high employee iteration.

Similarly, Nifty Auto was down heavily last week, but recovered the losses and closed 4.82 percent higher during the week. Both the Nifty Midcap 50 and Nifty Small cap 50 followed the benchmark indices, and each closed above 3 percent higher.

THE WEEK AHEAD

Nifty Weekly Pivots

As per the above pivots data, 15850-16550 is the Nifty 50 trading range for the next week. The support is around the 15850 level. If the market breaks this level, such a break can drag the Nifty down to 15450 or below levels in the short term. View the Pivot Calculator. Also refer to the chart above, 16500 -16700 is the immediate resistance level.

What’s Next?

The Nifty has made triple tops in the last seven months and failed to surpass the previous highs. In the short term, it looks like the market is in a trading range of 15800 to 16800.

The Nifty closing price is below the 50-day moving average and the 200-day moving average. And the 50-day moving average price is below the 200-day moving average price.

The market would remain volatile a little longer till there is more clarity on ongoing concerns, as listed above, and the gains may not be significant in the short term. One outlier event of interest cut by China does not change the ground realities. However, such an outlier events are wonderful for speculation.

In the short term, the bias is definitely bearish because of volatility and global uncertainties, however the India’s growth story is intact on a long-term basis, as:

• FDI inflows – India recorded its highest ever FDI foreign direct investment in FY 2021 22.

• EPFO enrolments hit a record high in FY 2021-22, showing an increase in formal job creation in the country.

• Though the Rupee has lost against the dollar during the year, it has gained against the other major currencies. The losses against the dollar could be a unidirectional run towards the dollar.

Right now, the market is only for traders with strong hearts.

This article is only for educational purposes and is not investment advice. Please consult with your investment advisor before investing.