As we entered March, there was renewed optimism in the air, particularly concerning the seasonality advantage this month typically brings. Investors were hopeful for a turnaround, especially given historical data indicating that after two months of decline, the Nifty Midcap150 and Smallcap250 indices have averaged an impressive 8% return in the following month over 70% of the time since 2016. However, last week’s developments told a different story, with the Nifty enduring its longest losing streak since its inception in 1996, marking a total of 10 consecutive days in the red. Fortunately, this extreme downturn sparked a significant rebound, pushing the Nifty up by over 600 points and igniting widespread buying interest.
Foreign Institutional Investors Remain Cautious
Despite the notable uptick in the Nifty, foreign institutional investors (FIIs) have yet to adjust their positions significantly. The ongoing concentration of index future shorts raises concerns reminiscent of previous market behavior following sharp recoveries. For instance, after a 1,000-point surge post January 27, the Nifty subsequently fell by approximately 2,000 points, validating the FII strategy of maintaining short positions. Current trends show that FIIs are favoring puts over calls, holding 8.3 lakh contracts in index put longs compared to 6.5 lakh in call longs. On the short side, they maintain 5.2 lakh contracts in puts against 4.7 lakh in calls.
FMCG Sector Shows Signs of Recovery
The FMCG index, which has seen a decline of about 13% since breaking its rising channel in November 2024, is indicating potential short-term gains. Recent daily charts have revealed reversal candle patterns, and the MACD indicator has shown a bullish crossover. Analysts anticipate the index could rise towards 52,600, and potentially reach 53,250, driven by key players such as Hindustan Unilever, ITC, Dabur, and others.
Realty Sector Poised for a Bounce Back
The real estate sector has faced a steep decline of nearly 30% since December 2024, nearing a crucial Fibonacci retracement level of 766. Recent observations suggest a reversal signal, with a weekly MACD histogram indicating market exhaustion. Initial profit-taking may occur next week, but the index is expected to regain momentum, potentially reaching levels between 860 and 940 in the coming weeks, led by companies like DLF, Godrej Properties, and Oberoi Realty.
Bank Nifty Lags Behind
While the Nifty and small/mid-cap stocks rallied, the Bank Nifty remained relatively stagnant. Notably, Bank Nifty commenced the week with 5% fewer open positions compared to the same period in the previous expiry. Its minor decline of 1% contrasts sharply with the 3% drop in the Nifty, indicating that Bank Nifty has maintained its position above January lows, suggesting a more stable base. This stability has resulted in less upward momentum compared to the broader market.
Nifty’s Future Prospects
The recent upward movement of the Nifty without dipping below 21,851—a significant Fibonacci level—has increased the likelihood of a substantial relief rally, with potential targets reaching as high as 23,500. However, caution is warranted as the Nifty is bouncing from near-record low RSI levels. Historically, rebounds from sub-25 RSI levels often lead to reversals, suggesting that a W-shaped pattern could emerge. This may result in further selling pressure before a more sustainable upward trend can be established.
Conclusion
As market dynamics unfold, investors may want to prepare for potential bearish movements in the near future.
Disclaimer: The insights shared are for informational purposes and should not be construed as financial advice. It’s crucial for investors to conduct thorough research and consult with independent financial advisors before making investment decisions.
