Nifty fell for the fourth week in a row. What’s Next?

Nifty fell for the fourth week in a row. What’s Next?

The benchmark indices ended the week on a bearish note following a heavy selloff in the global markets. The market witnessed profit booking in all sectors. Nifty closed at 16411 and corrected about 691 points or 4 percent during the week. The Nifty 50 fell for the fourth week in a row. Likewise, the Bank Nifty was also down during the week and corrected by 1497 points or 4.15 percent.

The market opened with a gap down of 178 points and closed 143 points down at 17103 on Monday. On Thursday, May 5, 2022, the market opened with a gap-up of 177 points, but could not sustain and closed with a small gain of 5 points at 16683. During the week, Nifty made a high of 17133 on Wednesday, May 4, 2022, and a low of 16341 on Friday, May 6, 2022. Bears were in full control during all trading days of the week.

FED & RBI

During the week, the RBI raised the repo rate by 40bps and CRR by 50bps. Similarly, the US Fed also raised the benchmark short-term rate by 50bps, showing a reversal of the easy liquidity policy. However, this rate hike was not unexpected because of strong inflationary pressures. The rate hike will reduce liquidity in the economy and the cost of funds and cost of deposits is likely to increase for the banks.

The 10-year bond yield increased to 7.5 percent, showing a rise in the cost of funds. For some corporates, this would be a double whammy because of rising input costs and rising interest rates. For individuals, the loan EMIs will increase. Certainly, the rate hikes by central banks worldwide can check the inflation but could also hurt growth.

FIIs and Volatility

The volatility index India Vix closed at 21.25 up by 1.83 points or 9.4 percent week over week.

FIIs were net sellers during the week. For the last couple of weeks, the FIIs are net sellers. Earlier, the DIIs’ buying was short of matching the FII’s selling and providing the much-needed cushion to the market. Over the period, the DIIs buying is vanning.

May is IPO month, starting with a large IPO of LIC, and ten other companies have lined up their IPO in the next two to four weeks. The market will test the enthusiasm of retail investors in IPO, while the listing gains may not be as per the expectations.

Nifty Market breadth

The market breadth remained in favor of the decliners, except for Wednesday when the market breadth turned positive, with 1815 stocks advancing on the NSE against 365 shares that declined. The weekly advance-declined ratio was 0.38.

TOP LOSERS OF THE WEEK

In Nifty, out of 50 shares, 41 shares were the losers during the week. It was a sea of red. Eicher Motors, Titan, Bajaj Finserv, Bajaj Finance, and Hindalco were the top Nifty losers of the week. Eicher Motors tops the chart with 10.19 percent down. The other notable losers of the week were Axis Bank down 7.68 percent, Dives Lab down 7.52 percent, Shree Cement down 7.51 percent, Grasim down 7.45 percent, Nestle down 7. View the list of all the Nifty 50 contributors.

TOP GAINERS OF THE WEEK

The gainers were few with limited gains and out of 50 shares, only 9 shares were the gainers during the week. Top gainers for the week were Power Grid, ONGC, ITC, Tech Mahindra, and Hero Motors. Meanwhile, Power Grid tops the chart with 4.39 percent gains during the week. The other notable gainers of the week were Coal India, NTPC, and Tata Steel.

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.

SECTORS AND BROADER INDICES

There was an across-the-board selling and favorites were none. In short, all major sectors were down during the week. Nifty Auto was down 5.05 percent and Nifty Pharma was down 4.77 percent, while Nifty Metal corrected about 4.84 percent during the week. Nifty IT and Nifty FMCG corrected 2.86 percent and 2.42 percent, respectively.

FMCG, Pharma, and Metal are down for continuously two weeks. The IT sector is down for three weeks in a row, showing weakness because of geopolitical tensions.

Similarly, Nifty Auto was up in the two previous weeks but down heavily during this week. The rate hike would affect the Auto sector most as the loan rates would go up and affect the retail demand, especially for the two-wheeler segment. The rate hike has come when the two-wheeler segment started showing month-over-month growth.

Similarly, both the Nifty Midcap 50 and Nifty Small cap 50 followed the benchmark indices and were down 4.25 percent and 6.96 percent respectively during the week.

THE WEEK AHEAD

Nifty Weekly Pivots

As per the above pivots data, 15800-17400 is the trading range for the next week. The support is around the 16100 level. If the market breaks this level, such a break can drag the Nifty down to 15800 or below levels in the short term. View the Pivot Calculator.

What’s Next?

The Nifty has made triple tops in the last seven months and failed to surpass the previous highs. It made a high of 18604 on Oct 19, 2021, a high of 18351 on 18 Jan 2022, and a high of 18115 on April 4, 2022.

The market has broken the major support level of Nifty 50. Now the 16800 level may act as major resistance. 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 geopolitical tensions and the gains may not be significant in the near term. As noted in an earlier blog, the bias is definitely bearish because of volatility and global uncertainties.

You need an enormous appetite to hold and carry the positions in and beyond May. In high volatility, sharp-up moves follow sharp dips. Surely it would keep the traders busy. Therefore, with interest rates rising and volatility because of geopolitical issues, one could focus on low vol and high dividend-paying defensive stocks.

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