Further correction more likely

Spooked by the hawkish commentary from the US Federal Reserve, escalating Ukraine-Russia crisis, fresh surge in international crude oil prices and fears over inflation; the domestic stock markets corrected modestly during the week ended. BSE Sensex fell 502 points to 57,362, and NSE Nifty declined 134 points to 17,153, while the broader markets were largely flat. The Midcap index was down 0.15 percent, while the Smallcap index gained a third of a percent. Weakness was evident in auto, bank, financials and FMCG stocks. However, surge in commodity prices globally helped metal, oil & gas, IT and energy stocks. Despite sporadic buying from FIIs in small quantities, they continued to be net sellers for yet another week.

As a result, the outflow in March 2022, so far, at Rs46,962 crore in cash segment was the highest in a single month since March 2020. Market players feel that the FII flows could return to emerging markets including India if there is any resolution to the Ukraine war. Crude oil prices are a major factor that needs to be closely watched by the street in coming weeks. Having a price above $100 a barrel is a major concern for India that imports 80-85 percent of oil requirements. Experts feel this price level if it sustains for a longer period then there could be a major inflation risk for India and further correction in the equity market can't be ruled out given a risk to earnings and economic growth. Do not rule out the Joker in the Pack to play spoil sport to the markets warn market watchers. After Hong Kong, South Korea and China, the UK is also reporting a rise in Covid infections. The latest outbreak is due to a variant named Stealth Omicron, which some believe may lead to another wave in India. If such a thing happens, the market may not like it.

In the week ahead, near term direction of the market will be dictated by the domestic macroeconomic factors, F&O settlement, Auto sales numbers, the ongoing Russia-Ukraine War, FII outflows and international crude oil prices. Markets are showing good resilience amid uncertainty across the globe. Markets are expected to remain largely range bound and investors are advised to continue to invest in pockets with a reasonable margin of safety ahead of their Q4 earnings numbers.

F&O / SECTOR WATCH

Ahead of settlement week, mild profit booking was seen in the markets. Derivative segment continued to witness heightened activity and as many as seven stocks were in ban list in F&O. In the option segment, maximum Call open interest was seen at 18,000 strike, followed by 17,500 & 18,100 strikes. In the Put option, maximum open interest was seen at 16,000 strike, followed by 16,500 & 17,000 strikes.

Considering the highest Put base of 17,000 strike, expect Nifty to find strong support around these levels and one can utilise any decline towards 17000 to create fresh longs. PCR OI for the week closed at 0.97. Expect market to remain sideways in upcoming sessions with bias likely to remain in favour of bulls. Traders should expect some more consolidation in index while stock specific action and sector rotation will remain under focus.

Ahead of March auto sales data that will be released on the first of April (Friday); auto stocks Tata Motors, Maruti Suzuki, TVS Motor, Hero Motocorp, Bajaj Auto, Ashok Leyland, M&M and Eicher Motors will be in focus. Rising industrial metals prices are hurting margins despite taking price hike, while higher oil prices are raising concerns over demand. On the back of chip shortage and ongoing supply chain constraints, industry sources expect numbers to be a mixed bag. Use relief rallies to lighten positions. News flow from service sector that business has reached pre-pandemic level and also likely to show significant growth in the first quarter of 2022-23 indicates better times for companies like PVR Ltd and Indian Hotels. Buy for steady gains in near term. Stock futures looking good are Aurobindo Pharma, Coal India, Cummins India, Granules, Indian Hotels, Nippon Life and TechMahindra. Stock futures looking weak are Amaraja, ABB, Colgate, Dixon, Kotak Bank, Manappuram, MFSL and Zydus Life.