The new week is set to begin on a positive note for the domestic markets. SGX Nifty at 19,800 indicates a gap-up opening of about 50 points for Nifty. Analysts expect the consolidation phase and stock-specific action to continue in the domestic markets. As foreign portfolio investors and mutual funds indulge in sector rotations in their portfolios, one can expect the market to move in a broader range.

As most companies have announced their first quarter results for the current fiscal, the focus would be on institutional behaviour, said analysts. 

Change in FPI strategy

Shrikant Chouhan, Head of Research (Retail), Kotak Securities, said: “While FIIs have remained net buyers of Indian equities to the tune of Rs 15,647 crore in the current month so far, overseas fund flows could be choppy this week as a depreciating currency against the dollar, post the Federal Reserve’s decision to hike interest rates by 25 bps last week, can prompt them to offload their holdings in local equities. Besides, the US Fed hinting at another rate hike amid wobbly inflation can impact the mood of global investors, resulting in fund outflows from emerging markets and making inroads into safe haven US bonds.”

According to Dr. V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the buying momentum has slowed down and FPIs have turned sellers during the last two trading days.

“An important feature of FPI investment is that their buy/ sell strategy is influenced by external factors such as the dollar index, US bond yields and global market trends, apart from domestic fundamentals. That is the reason why FPIs have bought the same financial stocks in the last three months that they sold in the first three months of 2023. Financials, automobiles, capital goods, real estate and FMCG continue to attract the bulk of FPI investment,” he added.

Global markets

Meanwhile, global stocks remained resilient. Last week, equities enjoyed as most central banks raised rates on expected lines.

IFA Global Research said It was a week of central bank rate decisions and while the Fed and the ECB both hiked by 25bps in line with expectations, it was the BoJ that sprung a surprise. “The BoJ decided to allow more flexibility in its YCC programme. It said it would offer to buy 10y JGBs at 1 per cent through fixed rate operations. This allows for the 10y JGB yield to rise above 0.5 per cent, the upper cap under BoJ’s YCC so far. This move is seen as a step towards gradually normalising an ultra-loose policy, as the Japanese economy is finally seeing some sticky core inflation.”

The S&P500 rose 0.9 per cent, while the Nasdaq rose 1.7 per cent last week. European equities did well on a dovish ECB, with the DAX gaining 2 per cent this week. “The outperformer though was the Shanghai composite, which rallied 3.8 per cent this week, as China introduced a slew of measures to revive consumption and investment in the economy,” IFA Global Research said in a weekly round-up report.

Nikkei up 2% in early deal

Tracking the US markets, stocks in the Asia-Pacific region displayed strong sentiment. Japan’s Nikkei jumped nearly 2 per cent in early deals on Monday, while others have gained around one per cent. Hong Kong’s Hang Seng jumped over 2 per cent.

According to analysts, the domestic markets will remain in consolidation mode given their elevated valuation. 

Riches Vanara, Technical And Derivatives Analyst, Stoxbox, said: “We believe that market participants resorted to some profit-booking as a stronger-than-expected US GDP data reignited interest rate hike concerns. In the upcoming sessions, we may see some consolidation and a quick breach of 20,000 levels on the Nifty 50 index looks a difficult nut to crack in the absence of any major triggers.”

However, he expects markets will continue to see some stock-specific action in the ongoing earnings season. 

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