The month of July has come as a blockbuster month for stock markets in nearly one year. Key indices Sensex and Nifty gained by 7.76 per cent and 7.91 per cent, respectively during the month, which is the largest monthly gain for both indices since August 2021.
Majority of the gains came in the last six trading sessions. On Friday, the Sensex rose 712 points or 1.25 per cent to close at 57,570. The Nifty gained 228 points or 1.35 per cent to close at 17,158. The rally in the domestic market was supported by the fact that global markets, especially the indices in the US, were stable even after a 75 bps rate hike by the US Federal Reserve.
These gains comes just a day after the July expiry for equity derivatives. The open interest (OI) in the August series is comparatively less than in July. The Nifty August Futures contract started with an OI of around 89 lakh versus 112 lakh, brokerage house Religare said in a note. The Banknifty futures saw August series start with an OI of 18 lakh units versus 22.3 lakh in July. At expiry, the volatility index (VIX) was at around 17 per cent, indicating an implied volatility of 695 points for the Nifty in the next 30 days.
“The underlying trend of the Nifty is sharply up. The unfilled opening upside gaps, sharp vertical up-move and the decisive upside breakout of significant overhead resistance indicate more upside ahead for the market. The next upside targets are to be watched around 17,600-17,800 levels in the next few weeks, but minor downward corrections/consolidations in between can’t be ruled out. Important support is placed at 16,950-16,800 levels,” said Nagaraj Shetti, Technical Research Analyst, HDFC Securities.
FPIs still sellers
Meanwhile, foreign portfolio investors (FPIs) sold stocks worth ₹9,000 crore in July. FPIs are not yet bullish on India even though their selling spree has come down. According to a fund flow report from Kotak Institutional Equities, the India dedicated funds saw outflows of $906 million, of which $677 million were exchange traded funds (ETF) and $229 million from non-ETF funds.
“FII’s who were aggressive sellers in the last three months have covered their short positions, and in fact, they have started the August series with net long positions in the index futures. Technically, the index has formed a ‘higher top higher bottom’ formation on the daily chart and is retracing the previous downtrend. It has surpassed the 50 per cent retracement of the entire down-move from the high of 18,600 to 15,180 and is now approaching the 61.8 per cent retracement which is seen around 17,300. The only cautious factor on the short-term charts is the momentum readings which are again in the overbought zone. However, when in a strong trending move, it is often seen that the up-move continues in the overbought zone as well until any divergences get formed. So the data is still positive and until the index breaches any important supports or witnesses short formations by the stronger hands, one should not pre-empt any reversal for now,” said Ruchit Jain, Lead Research, 5paisa.com.