Signals from SGX Nifty and Asian stocks indicate flat opening for Indian stocks. As the market failed to sustain the strong initial gains on Monday, analysts expect the stock to come under pressure on Tuesday as well, despite a strong closing at the US.
Following indications from RBI Governor that more rate hikes are likely to tame inflation, experts believe tough times are ahead for equity investors.
SGX Nifty futures at 16,200 indicates a soft opening for domestic bourses, as Nifty futures on Monday closed 16,183. Equities across Asia-Pacific are down except Australian stocks.
As May contracts settle this Thursday, analysts said volatile trading due to rollover of positions.
According to analysts, continuous selling by foreign portfolio investors is cause for concern. However, according to them, so far Indian markets withstood their huge sell-off.
For Nifty, 16,400 is crucial
Despite the outflows, Indian equities is still one of the best performing markets with YTD gains of almost 10 per cent, said ICICI Securities in a report. After the recovery seen in mid-March, the Nifty has come under pressure again and retested March lows once again in April.
During this fall, stocks from the auto and gas have shown decent resilience against the market volatility while stocks from the midcap technology and select stock from the metal along with NBFC segment has witnessed huge short additions where the stock prices corrected to the tune of about 25-30 per cent from the top, it added.
ICICI Securities said positive sentiments to re-emerge above 16,400.
"We feel current recovery for the Nifty may extend towards 17,000 levels. However, on the downsides early low of march month levels of 15,600 to remain very crucial. In this recovery we feel major participation might be witness in auto and oil and gas stocks," it added.
Highest short positions
The unabated FIIs selling seen in secondary markets is one of the highest ever seen in Indian equity markets. “However, from the F&O front, the aggressive shorts we have seen in the May series is one of the highest seen since 2018 (exception being Covid related selling in March 2020), said ICICI Securities in a report.
"We have observed net short exposure (Index future) above 1 lakh contracts near the bottoms. It resulted in meaningful short covering. We expect similar action this time as there short exposure was above 1.22 lakh contracts. In the last few sessions, early trend of short covering was observed," it further said.