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Equities are likely to suffer further this week due to lack of confidence from market participants, particularly from mutual funds, and weak rupee.
According to Street experts, mutual funds are not willing to commit themselves now despite several stocks ruling at multi-year lows, as the funds fear a further fall.
The market is now completely dominated by foreign institutional investors. They will persist with selling on the back of weakening rupee.
Foreign funds pulled out about Rs 7,300 crore in nine straight trading days since November 15, according to exchange data. On the other hand, domestic institutions' net buying stood at about Rs 5,900 crore.
“We have taken a cautious stance on the Indian rupee in recent months and while the currency has weakened sharply, we do not yet see light at the end of the tunnel,” said a note from HSBC. “In an environment of moderating global growth expectations and broad de-risking, current account deficit currencies such as the Indian rupee will struggle. In our view, the INR has room to fall further if global growth expectations continue to decline and the US dollar liquidity pressures are intensifying.”
Domestic cues continued to be negative — be it policy gridlock; or elevated levels of inflation; or the likelihood of fiscal slippage. The global situation is also adding to the pressure as there are no signs of a resolution to the debt crisis in the Euro-zone.
Investors will continue to watch the developments in Europe, and overseas equities will determine the direction domestic indices will take early during Monday's session.
The cautious stance of market participants was well captured by the movement of the derivative market.
Nifty futures witnessed a rollover of 64 per cent (to December series from November), which is much lower than the three month-average of about 71 per cent. This indicates that traders who went long preferred to book losses as they fear further value erosion in the coming month.
Bank Nifty saw high rollovers but on the short side, indicating that traders expect further fall.
On the options front, 4500 and 4700 December puts have seen significant rise in open interest pointing that Nifty is likely to move in the range during the short term. Trading in Call options points a limited upside due to the strong emergence of call writers at 4800, 4900 and 5000 level.
Despite the market being oversold, there are little triggers to turnaround the Street mood. Even the clearance of foreign direct investment by Union Cabinet on in multi-brand retail failed to cheer market participants, as they expect several roadblocks, given the reservation within the Government and the Opposition.
Under such a situation, selling pressure on equities is likely to continue.
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