Major Change in Market Dynamics, What’s Next?

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In the past 3 months, Indian markets has felt brunt of rising energy prices thus forcing FIIs to aggressively dump their holding to domestic participants without any signs of hesitation, thus breaking the back bone of domestic retailers. If we go back 1 year ago, the euphoria was in full form with most retailers spreading propaganda of holding stocks for long term.

The non-institutional volume which is measured by deducting FII & DII volumes from total volumes was consistently hitting Rs 55,000-60,000 crores on daily basis has now dropped drastically to Rs 22,000-30,000 crores as retailer and HNIs have got trapped in major midcap and small cap counters. Sectors like technology & metals have collapsed nearly 45% from all-time high and most of high beta midcaps have seen buyers vanishing from trading platforms.

With FII selling more than Rs 2,80,000 crores year-to-date, Nifty should have dropped below 12,000 levels but extraordinary efforts by DII to match FII selling has helped Nifty to sustain above 15000.

The next leg of upmove in market would turn further narrower with rally expected to be concentrated in a few stocks in Nifty 50 Index. The spread of Nifty 50 & Nifty 500 Index i.e. (Difference in both indices) is indicating bullish accumulation and spread which is trading at 2365 expected to surge to 3100 levels in near term. This implication could be on back of short covering by FIIs in derivatives market which could force Nifty 5-6% above October 2021 highs.

The sector which has seen massive outperformance in past few months are Automobile, Banking and FMCG and leadership could be concentrated in financials mainly for next leg of upmove while commodities and technology could turn laggards. There has been interesting observation in cross asset class. A breakout is seen in ratio of S&P BSE Financial to MCX Copper prices and this would mean fund flows from metal segment to start chasing large cap financials.

PUNCH LINE!

Switch from broader market portfolio to Nifty 50 Index ETFs Can expect NIFTY to surge higher to 19,867 with INDIA VIX falling to 10% mark. Bank Nifty to see major outperformance and upside potential is seen at 30% to 45000 mark.

The author is Fund Manager, Nakshatra Alternative Investment Fund & Director at Index Genius Investment Advisors. Views are personal