Market witnessed a relief rally after three days of correction with Nifty ending the session near day’s high. It appears the market to continue the rally on Friday as well, at least in the earlier part of the day. Short-covering on monthly F&O expiry helped market to recover.

Ajit Mishra, VP - Research, Religare Broking Ltd, said: "We’re seeing respite in line with the global counterparts but participants shouldn’t read much into a single-day rebound."

Beaten down sectors like Metals, Banking and Financials, Cement and Sugar witnessed gains on back of buying interest.

Positive global cues

SGX Nifty at 16,275 indicates a gap up opening of 100 points for NIfty, as Nifty futures on Thursday closed at 16,168.

Signals from the global markets, too, is positive as the US stocks ended on strong note. All the three major indices - S&P 500, the Dow Jones Industrial Average and tech-focussed Nasdaq - ended resiliently. Following suits, Asian stocks in early trade are trading higher led by Chinesse and Korean markets.

However, analysts are cautious as economic fundamentals still remain a cause for concern. Moody's Investors Service has lowered its growth forecast for India for the current calendar year by 30 basis points from 9.1 per cent to 8.8 per cent. Inflation is still at elevated levels.

A-D ratio at 26-month low

A study by Ventura Securities said the breadth of Indian markets, measured by the advance-decline ratio (i.e. the ratio of stocks advancing to stocks declining) touched a 26-month low in May 2022. "It means, the general market trend is down and people are less optimistic about future stock prices.," it opined.

VIX cools, but...

On the positive index, volatility index India VIX was down by 10.14 per cent from 25.28 to 22.72 levels. However, analysts say that it is still at elevated level.

"Volatility cooled down and giving some respite to the bulls but it needs to come down to 18 zones for market stability," said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

Return of FPIs crucial

According to analysts, unless buying emergence from foreign portfolio investors in big way, markets are likely remain submissive only. According to NSDL data, FPIs have offloaded over ₹43,000 crore worth shares in May alone.

Subash Gangadharan, Senior Technical and Derivative Analyst, HDFC Securities, said: "While we remain open to a pullback rally in the very near term, we must remember that the intermediate trend remains down. The bears would gain more control once the recent intermediate low of 15735 is broken."

Ajit Mishra said: "Keeping in mind the risk and intraday volatility, participants should limit leveraged positions. Investors, on the other hand, can start nibbling as quality stocks are available at a good bargain."

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