Mid, smallcaps underperform as market loses more ground

Turmoil in the banking sector and rate hikes by the US Federal Reserve and Bank of England, which sped up FII selling, weighed on Indian equities, with the market closing lower for the week ended March 24.

In the week, the 30-pack Sensex fell 462.8 points, or 0.79 percent, to close at 57,527.1, while the broad-based Nifty declined 155 points, or 0.90 percent, to 16,945.05. It was third straight week of losses for the market.

Broader indices underperformed the benchmarks. BSE small, mid and largecap indices declined 1.5 percent, 2 percent and 0.75 percent, respectively.

The worries of a global banking contagion kept investors focused on the outcome of the Fed policy meeting, said Vinod Nair, Head of Research at Geojit Financial Services. The Fed’s decision was in line with expectations, as rates were increased by 25 basis points, he said.

The Fed became less hawkish in its statement, hinting at a pause in rate hikes. “However, weak signals from the European market did not allow bulls to lead as European banking stocks fell following rate hikes by the central bank and rising CDS spreads,” Nair said.

Volatility is expected to continue in the short term, as the global banking system has not fully recovered from the crisis, especially in Europe. “In addition to the banking sector, IT stocks also witnessed selling on fears of muted deal wins from the BFSI segment in the western markets,” he added.

On the sectoral front, the BSE realty index shed 4.7 percent, metal index 4 percent, information technology 3 percent and the capital goods index was down nearly 2 percent. The power index, however, added 0.6 percent.

The BSE smallcap index ended 1.5 percent down, with 21 stocks falling between 10-21 percent. These included SVP Global Textiles, Sobha, Hi-Tech Pipes, Cybertech Systems and Software, Seamec, Vakrangee and Optiemus Infracom.

Mangalam Industrial Finance, Asian Energy Services, Gujarat Themis Biosyn, Aarti Drugs, Valiant Organics, Shivalik Bimetal Controls and TTK Healthcare were among 16 stocks that added between 10 and 29 percent.

“The hike in the base rate by the Fed and Bank of England, and the persistence of inflation, and the therefore of the hard money policy, has been viewed as negative for the markets in the immediate term. These factors may continue to influence market movements in the coming week too,” said Joseph Thomas, Head of Research, Emkay Wealth Management.

Foreign institutional investors (FIIs) continued their selling spree. They sold equities worth Rs 6,654.23 crore, while domestic institutional investors (DIIs) bought equities worth Rs 9,430.59 crore during the week.

Where is Nifty50 headed?

Amol Athawale, Technical Analyst (DVP), Kotak Securities

Technically, a reversal formation on daily charts and bearish candle on weekly charts indicates further weakness. The weak sentiment is likely to continue as long as the Nifty trade below 17100, from where the index can slip to 16,700.

A fresh uptrend is possible if the Nifty manages to go past 17,100. The index can then rise to 17,250-17,300.

For the Bank Nifty, 39,750 or the 200-day SMA will act as a trend decider, below which the index can slide to 39,000-38,700.

On the flip side, above the 200-day SMA or 39,750, the index can rally to the 20-day SMA or 40,200-40,300.

Jatin Gedia, Technical Research Analyst, Sharekhan by BNP Paribas

The Nifty is trading in the 16,910–16,970 zone, where the crucial Fibonacci retracement levels of the previous rise from 16,828–17,207 are placed. This zone shall be the make-or-break support zone. If the Nifty fails to hold it, it will start the next leg of the fall.

The daily momentum indicator has a positive crossover, which is a buy signal and supports our view that the pullback rally is not complete. We continue to maintain our positive outlook on the Nifty. On the upside, the initial hurdle is at 17,180–17,210. If the Nifty goes past it, it can rise to 17,315-17,430.

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