Dalal Street
Analysts predict mid- and small-cap companies with fundamental values to remain cheap.
Domestic markets experienced volatility in the week ending March 15 due to a selloff in mid- and small-cap pockets due to concerns of frothy valuations.
Analysts predict that the US Federal Reserve’s interest rate decision, macro-data, and more stress test results from mutual fund houses will keep markets on tenterhooks in the coming week.
Frontline indices Sensex and Nifty declined by 2% each, while broader markets BSE Smallcap and BSE Midcap slipped up to 6%. All sectors traded in the red, except IT and Consumer goods, with the maximum fall seen in Oil & Gas, Construction, and Media.
The market is expected to react to the US Federal Reserve, Bank of England, and Bank of Japan’s interest rate decisions, as well as important macro-economic data and S&P Global manufacturing and services PMIs of India, UK, and the US.
Main Factors to watch
US Federal Reserve interest rate decision
Economists expect the US Federal Reserve to maintain a 5.25-5.5 percent interest rate. Other than that, market players will closely monitor economic predictions and interest rate cuts.
According to a Reuters survey, analysts expect the US Fed to lower rates in June 2024 as it awaits additional evidence to demonstrate inflation is approaching the 2 percent objective.
The US consumer price index climbed to 3.2 percent in February, above market estimates of 3.1 percent. Core CPI, excluding food and energy, rose 0.4 percent last month and 3.8 percent a year earlier.
Equity movements will be affected by US bond rates and dollar index after the US Fed’s interest rate announcement. US 10-year bond yields were about 4.3 percent and the dollar index was around 103 on March 15.
Domestic factors
India’s Services PMI will be issued home. Bank loan and deposit growth will also affect the sector’s performance, thus market players will watch it. India will report foreign exchange reserves.
Stress test results
Several mutual fund firms revealed their liquidity stress test findings after Sebi ordered AMFI to do so. Market regulator SEBI is concerned about froth in these schemes despite huge fund firms restraining inflows due to a lack of investment opportunity at the correct price.
The largest small-cap plan, Nippon India Small Cap Fund, has Rs 46,000 crore in AUM and would sell half of its holdings in 27 days.
Edelweiss Mutual Fund quoted two days to sell 50% of the holdings. All mutual fund companies must post stress test findings every 15 days starting March 15.
IPO, listing
This week, main markets will quiet after weeks of IPOs. Krystal Integrated Services’ Mainboard IPO closes March 18. A 70% IPO subscription occurred on the second day of bidding. The business will launch exchanges March 21, 2024.
Vishwas Agri Seeds, a SME IPO, will open on March 21 and finish on March 26. Vishwas Agri Seeds processes and distributes seeds to farmers through a large network. The firm sells Groundnut, Soybean, Wheat, Cumin, Green Gram, and Black Gram seeds.
FII flow
Following Sebi’s approval of a raft of relaxations for foreign portfolio investors, alternative investment funds, and entities seeking to raise funds through initial share sales to ease securities market business, market participants will watch foreign flows this week.
International investors (FIIs) acquired Rs 40,710 crore in stocks in March. FIIs purchased Rs 848 crore in stocks on March 15, while DIIs sold Rs 682 crore.
Technical View
After breaking dual support—20-DEMA and rising trendline on the daily chart—analysts forecast markets to fall further this week.
“A break below 21,850 might lead to a drop below 21,500. If it breaks over 22,250, the view is invalidated. IT and FMCG are stronger than others, while others may remain mixed. Ajit Mishra, Senior Vice-President of Technical Research at Religare Broking, reiterated his support for index majors and advised holding positions on both sides.
Oil Prices
After weeks of consolidation, Brent crude futures ended over $84 a barrel. Though volume was lower than typical, the price broke a downward-sloping resistance trendline. Brent futures settled at $85.34, up 4% weekly.
Experts expect Brent to see resistance at $88 a barrel and support at $80.
The bullish demand prognosis for crude oil in 2024 from OPEC, EIA, and IEA and the supply gap of 0.3-0.5 mbpd have boosted oil prices. We expect oil prices to rise in the near to medium term. Mohammed Imran, Sharekhan by BNP Paribas research analyst, advised buying opportunities after all big corrections.
Indian VIX and F&O Cues
Given the turbulent trading with negative bias, options data suggests that 21,800 will be significant support for the Nifty 50 in the next days, with 22,300 as the major obstacle.
The weekly options market had the most Call open interest at 23,000, followed by 22,500 and 22,000, with meaningful Call writing at 22,000, then 22,100 and 22,300 strikes, and the most Put open interest at 21,000.
After a steep drop the week before, volatility rose, but it stayed below 14, so bulls are not concerned. India VIX, the fear indicator, climbed 0.57 percent to 13.69 from 13.61. Bulls may become uneasy if the VIX rises over 16, analysts say.
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