Bearish trend will continue in markets

The last week’s fall in the market, which wiped out Rs. 5.6 lakh crore of investors wealth, proved our stance on market. We were cautioning about this fall in our earlier columns. With lack of positive triggers to move further highs or lot negatives around the market, it is not a time to stay invested. It also proved that the liquidity-driven market rally will not sustain for a longer period.

Increasing liquidity, came into the market via SIPs, forced the domestic institutions to buy the stocks on stretched valuations.  Meanwhile, the FPIs are pulling out the capital from the markets as their returns in dollar terms are deteriorating.  In recent times, the pace of inflows from DIIs has slowed for four consecutive months.

The ratio of gross redemptions to sales has picked up recently, suggesting early signs of rising redemption pressure for mutual funds.  The sudden default fears may hit the market, but there are many macro headwinds as well for the market in the near-term on account of moderating sequential growth, tighter financial conditions, rising oil prices, worsening CAD and a volatile INR.

The domestic currency volatility could remain source of concern for investors for next three-six months. Apart these fundamental factors, the market is likely to focus on the state elections to be held in Q4 this year and the market volatility will increase while the country heads into General Elections next year. FIIs are likely to stay on the sidelines until political uncertainty is over.

Now, technically Nifty breached many support levels last week, as it is trading much below the short and medium term moving averages and breached the previous breakout points. Nifty on Friday recorded the highest volatility on a single day after 2014 and posted a 3.2 per cent loss on weekly basis. It formed a sizable bearish candle with a long shadow and maintained lower high and lower for the third week, signalling a continuation of further weakness in the trend. 

For the next week, the market may consolidate between 11400-10860 as it required to digest the last week's move before moving further up or down. Charts suggest that the intermediate top is placed at 11760, unless there is a very strong positive trigger.

On the downside, Friday's low is crucial.  If it breaks that, the next level of support is at 10,555. Any bounce towards 11350 may accentuate selling pressure. As volatility is back, investors need to be cautious and should not try to buy dips at current levels. Avoid all BFSI sector stocks and focus on dollar revenue companies. (Hans Research Team)