Indian stock markets are expected to open on a cautious note on Monday. According to analysts, global trends and FII activity will dictate the market direction in the short term. Experts believe the market is trying to find the bottom, which may happen soon, as most of the negatives have already been priced in. However, they added that the return of FPIs is crucial for the market to bounce back.

Key factors

Mitul Shah, Head Of Research at Reliance Securities, said: "As Q1-FY23 has ended, market await on corporate earnings results for cues. Rising inflationary pressures and concerns of global recession, continue to impact market sentiments amid geopolitical issues of the prolonged Russia-Ukraine war."

SGX Nifty at 15,720 (810 am) indicates a flat-to-negative opening for the market, as Nifty futures on Friday closed at 15,754. Asian stocks are mixed with Japan, Australia, and Taiwan equities ruling in the green and equities in Korea and Hong Kong slipping in early deal on Monday.

Tepid global cues and nervousness ahead of the earnings season have impacted sentiment, they said.

FPI selling on the rise

In June, FPIs sold equity worth Rs 50,145 crore through the stock market, taking the total FPI selling in CY 22 to Rs 2,23,944 crore. "This massive capital outflow has significantly contributed to the depreciation in INR which breached 79 to the dollar recently. The relentless FPI selling has to be seen in the context of a steadily rising dollar and bond yields in US," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Service.

FPIs are selling more in countries with rising current account deficits ( CAD) like India because the currencies of such countries are vulnerable to further depreciation, he added.

"Towards the end of June FPI selling has been showing a declining trend. If the market rises in July anticipating or responding to good Q1 results, FPIs may again sell. This trend will be halted only when the dollar stabilises and US bond yields decline," Vijayakumar said.

FPIs still short heavy in F&O

Analysts also see positive data from derivative segment.

According to Ruchit Jain, Lead Research,, “if we look at the derivatives rollover data, then it is seen that rollovers in Nifty were lower than average which indicates that lesser shorts have been rolled to July series”.

FII’s positions in index futures are short-heavy, and any positive turnaround in the global markets could lead to some short covering by them.