India's financial markets have been on shaky ground, with the upcoming week set to hinge on several key factors, influencing the overall direction of key stock indices like the NIFTY50 and SENSEX. Investors are bracing for auto sales data, developments on President Trump’s tariffs, and foreign fund outflows to shape market behavior.
Last week marked the third consecutive week of losses for the markets, with the NIFTY50 index slipping nearly 3%, closing the week at 22,124 points, down by 2.9%. Similarly, the SENSEX ended at 73,198 points, down 2.8%. Broader market indices were not spared either, with both the NIFTY Midcap 100 and Smallcap 100 indices plunging over 5% each. The downturn has been broad-based, particularly affecting sectors like IT, which fell by 7.9%, and PSU Banks, which saw declines of 5.3%.
"If the NIFTY50 falls below 21,800, it could extend losses," warned economic analysts as they examined the technical structure of the index, which remains bleak. The charts indicate immediate resistance for the NIFTY at around 22,800, with significant support aligned near the 21,800 level. Should the index dip below this support on closing, it would signify potential for extended weakness.
Market breadth has been underwhelming, evidenced by only 16% of NIFTY50 stocks trading above their 50-day moving average (DMA). This trend has historically predicted short-term bullish reversals when dropping to around 10%. Yet, the index has languished below the key 50% level for more than five months, indicating continued fragility. The last week’s trading activity reflected this sentiment, demonstrating how precarious the situation has become.
The upcoming week will also react to February’s wholesale auto sales data amid persistently subdued retail demand. Analysts note these figures are likely to impact market psychology significantly. With recent sales performance being lackluster, market watchers will closely analyze the data for any signs of recovery.
On the global front, investor sentiment may experience shifts due to the potential tariffs imposed by the United States. Reports suggest U.S. President Trump's tariffs on Mexico and Canada may be revised downward from the initially proposed 25%, sparking discussions on trade relations. Trump's administration claims the circumstances remain fluid, but the finalization of tariffs on China at 10% could bolster domestic markets if perceived favorably.
After seeing significant net selling, foreign institutional investors (FIIs) rolled over their bearish positions on index futures for the March series. They entered the trading month with a stance showing long-to-short ratios of 15:85. The analysis indicates this bearish positioning parallels their recent activities, which have shown FIIs offloading shares to the tune of ₹59,988 crore throughout February.
Meanwhile, domestic institutional investors (DIIs) have remained net buyers, counteracting some of the sell-off. They purchased ₹59,988 crore worth of stocks, helping to stabilize certain sectors even as broader trends remained negative. Jimeet Modi, CEO of Samco Group, pointed out, "FPIs are likely to stay away until Indian equities become more attractive," highlighting the challenges faced by local markets amid international economic dynamics.
Domestic data on economic growth also casts shadows on investor confidence, with India’s GDP growth recovering to 6.2% during the December quarter of FY25 after two consecutive quarters of declines. Despite this positive uptick, significant revisions to past economic data leave economists uncertain about future growth trajectories. The Ministry of Statistics and Programme Implementation has projected growth rates slightly above earlier forecasts, forecasting a 6.5% growth for FY25.
The commodities market adds another layer of complexity as gold prices dropped over 1% last Friday due to the strengthening U.S. dollar. Oil has similarly faced downward pressure, showing its first monthly decrease since November, influenced by geopolitical uncertainties surrounding tariffs and production decisions from OPEC.
Looking forward, the release of India’s manufacturing purchasing managers' index (PMI) data is awaited, slated to reveal insights about the industrial sector's health. Analysts anticipate this indicator could impact trading behaviors substantially and provide clues about future economic momentum.
With the indices leaning heavily on these key market influencers, traders are advised to pay close attention to the identified resistance and support levels. Rupak De, senior technical analyst at LKP Securities, mentioned, "Nifty is expected to find support around 21,800-22,000," stressing the need for sustained trading above these levels for optimism to return.
For Monday's trading session, both the NIFTY50 and SENSEX appear to carry mixed sentiments, largely reliant on how favorable economic indicators will play out this week. A close eye must be kept on the various data points and their potential to influence investor reactions. Should the market stabilize, the technical outlook suggests upward trajectories could emerge. Conversely, persistent economic headwinds may signal continued volatility.