Nifty, Sensex gain on strong global cues, analysts advise caution

The Indian equity benchmark rebounded on January 19 morning amid positive global cues after three straight days of losses, with information technology and banking names leading the gains .

At 9.19 am, the Sensex was up 590.68 points, or 0.83 percent, at 71,778, and the Nifty was up 169.50 points, or 0.79 percent, at 21,632. About 2,132 shares advanced, 332 declined and 75 remained unchanged.

In the broader market, BSE midcap and BSE smallcap indices jumped nearly a percent.

All Nifty sectoral indices were trading higher, with IT, energy, metal, bank and infra stocks in the lead. Nifty PSU Bank, FMCG, auto and pharma were also trading with gains of up to 0.6 percent.

“We expect the market to consolidate in a range with limited upside amid a global uncertain environment. Nifty heavyweights like Reliance, HUL, and Ultratech will announce their results on January 19 which could drive the index on either side,” said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services.

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FII-DII tug of war

An important trend in the market that has implications for retail investors is the revival of the tug-of-war between foreign and domestic investors. In the last two days, FPIs have sold shares worth Rs 20,480 crore.

“This is partly in response to the rising bond yields in the US where the 10-year yield has risen to 4.16 percent and partly due to the high valuation in the Indian stock market,” said K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Since the largest chunk of FII AUM is in banks, they have been selling in banks, mainly HDFC Bank.

“Investors should remember that in the tug-of-war between FIIs and DIIs in recent years, DIIs always won in the medium to long-term even though FII selling can cause short-term pain. FII selling due to external factors has always been opportunities to buy. This time is no different,” he said.

Nifty, Bank Nifty technical view

“In the previous session, the Nifty witnessed a pullback from the support zone of 21,820–21,300, which is likely to continue over the next few trading sessions,” said Jatin Gedia – Technical Research Analyst at Sharekhan by BNP Paribas.

In terms of levels, 21,550–21,570 is the immediate hurdle zone and 21,350– 21,300 the crucial support zone

Bank Nifty has reached the 161.82 percent Fibonacci extension level at 45,768, which also coincides with the 20-week moving average, making 45,800–45,600 a crucial support zone. As long as the index holds the level, the recovery will continue, Gedia said. On the upside, the pullback can come till 46,400–46,600, he added.

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What should investors do?

Any rebound of Nifty to 21,700-21,850 will attract fresh shorts, Ajit Mishra, SVP – Technical Research, Religare Broking, said. “We thus reiterate our view to reduce positions on the rise and wait for some stability in the trend,” he said.

Vijayakumar said mid and smallcap segments are strong despite excessive valuations because there is sustained buying and no selling pressure from FIIs. This anomaly will be corrected in due course.

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