Stocks rise after 6-day drop, but concerns linger
Mumbai: Stocks staged a rebound on Friday following a six-day decline that eroded ₹17.95 trillion in investor wealth. Analysts, however, refrained from calling this a recovery, labelling it as a “dead cat bounce” whose life is uncertain, given escalating geopolitical tensions and rising bond yields in the US.
The rise coincided with foreign brokerage JP Morgan’s upgrade of India from neutral to overweight, days after Morgan Stanley put India on top of its overweight stance. JP Morgan recommended that investors utilize near-term corrections as buying opportunities, citing historical trends that have often seen a market rally in the run-up to general elections.
However, foreign portfolio investors (FPIs) remained net sellers, offloading a provisional ₹1,500 crore in shares, while domestic institutional investors (DIIs) bought ₹313.69 crore, indicating that Friday’s market rebound was driven by short-covering. FPIs have sold shares worth ₹31,524 crore over the past two months.
The Nifty recaptured the 19,000 mark, rising 1.07% to 19,059.7, while the Sensex jumped 1.01% to 63,782.8. Both indices shed 4.8% and 4.9%, respectively, in the preceding six sessions.
The Nifty Midcap 150 and the Nifty Smallcap 250, which underperformed in the past six days by falling around 6% each, gained 1.46% to 14,513.70 and 1.93% to 12,024.90, respectively.
Friday’s market rebound was expected as the preceding six-day decline pushed indices, including Nifty and Bank Nifty, into oversold territory. This was evident through the relative strength index (RSI), with Nifty and Bank Nifty RSIs at 27 and 25, respectively. The typical range for RSI, which measures the magnitude of recent price changes, is 30-70, with below 30 indicating oversold conditions and above 70 signalling overbought levels.
“This is a dead cat bounce,” said U.R. Bhat, co-founder of Alphaniti Fintech. “Its life is contingent upon global news-flows on the Israel conflict and US bond yields, impacts of both of which are unravelling.”
Nifty options’ activity indicates initial support building up at 18,900 and resistance at 19,250 for the coming week.
The Israel-Hamas war still threatens to involve other state actors while US bond yields hover around 16-year highs, which can impact consumer spending. The uncertainty surrounding these two factors caused FPIs to pile up substantial bearish positions on Nifty futures on the day the October series of derivatives expired—every series usually expires on the last Thursday of a month—an action that has been seen at the middle of a series and rarely, if ever, at the end.
FPIs increased their cumulative net shorts on Nifty and Bank Nifty futures by a whopping 59,740 contracts to 152,060 on Thursday, a seven-month high from the record 196,378 contacts short on 22 March. Alphaniti’s Bhat attributed the build-up to hedging of FPIs’ “substantial” cash portfolio as they prepare for news flows out of Israel.
The expiry itself indicates that markets had turned cautious, with bulls trimming their long positions, said Kruti Shah, a quant analyst at Equirus.
Shah said that the dead cat bounce could extend to 19,500 in the run-up to Diwali, which is two weeks away. Markets have run up between 1% and 7% in the month ahead of Diwali during the past five years. However, she added that the move would be “bumpy.”The other factor is the results. The profitability by the early bird numbers has been around 15% from a year ago, with companies tending to do well operationally. This was evident in Maruti Suzuki’s record quarterly net profit of ₹3,716.5 crore in the three months ended 31 September, which drove the stock to a 52-week high of ₹10,845 on NSE.
“Exciting news! Mint is now on WhatsApp Channels ???? Subscribe today by clicking the link and stay updated with the latest financial insights!” Click here!
Download The Mint News App to get Daily Market Updates.
Updated: 27 Oct 2023, 11:34 PM IST
