Buying by FIIs crucial for Nifty to move beyond consolidation zone

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NEW DELHI: Lingering concerns over the weakening rupee, global interest rate hikes, elevated inflation numbers and lockdowns in China kept the markets on edge this week.

Both benchmark indices ended the week with losses. The Nifty50 lost about 3.83 per cent, while the 30-share Sensex declined 3.72 per cent. The broader market also saw selling. Sectorally, metals and power stocks were under heavy selling pressure.

Analysts said the release of higher-than-expected US CPI data suggests that the inflationary pressure will persist in the near term. Indian data was also higher than expected, which may further induce caution.



However, some analysts believe inflation is presumed to have peaked and will gradually decline in line with the ongoing fall in crude and other commodity prices and a slowdown in the economy.

“The Fed surprised the market with a hawkish stance, limiting liquidity, which limits further setbacks in the future. We can expect stability in the market as FIIs selling reduces factoring inflation and Fed policy,” said Vinod Nair, Head of Research,

.

“On the other hand, domestic institutional investors (DIIs) have lost their confidence after bearing continuous losses. Given the current volatility in the market, investors prefer defensive sectors like IT and pharma, supported by the weakening INR. Going ahead, the major determinant for market direction would be the pace of decline in inflation in response to the Fed measures.”

Another negative factor hurting markets is margin pressure that the companies have faced in the last quarter. The quarterly earnings have disappointed many on this front. Though, analysts believe this is a short term trend and the situation will likely improve in the second half of the fiscal year. Nonetheless, the market will keep a watch on the companies that are yet to announce their numbers.

“As the result season approaches its climax, D-Street will move in sync with the global news flow. Next week India’s WPI data will be released and the much-anticipated IPO, LIC, will be listed on the exchanges,” said Yesha Shah, Head of Equity Research, Samco Securities.

Apart from these, no other major events are expected. In absence of any positive catalysts, indices are expected to remain under pressure as selling is emerging on every bounce, said analysts.

“Investors are therefore urged to remain on the sidelines since it is preferable to wait out the storm than to go bottom fishing during such turbulent phases,” said Shah.

The expected rate hike cycle continues to remain a key overhang for equity markets globally, agree analysts. Also, relentless FII selling in the domestic market added to the overall downtrend. So, for the indices to breakout of the zone, buying by FIIs is important.

“Nifty is struggling to cross 16,000 zones with selling emerging at higher levels. While the markets are oversold, we expect both volatility and weakness to continue next week as well given the weak global cues. Continuous FII selling in index heavyweights could limit upside on any possible bounce,” said Siddhartha Khemka, Head – Retail Research,

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