Domestic markets are likely to open on a flat note on Tuesday after scoring handsome gains in the last few days on the back of continuous institutional buying. As the US markets closed for a holiday on Monday, global markets are struggling for direction. However, domestic markets see both domestic and foreign institutional investors buying and that is likely to continue, said analysts.
Earnings season is in its last leg. The IMD has reiterated its previous forecast of a normal monsoon (96% of LPA) this year. This augurs well for the agriculture and allied sectors and should help boost kharif output, said Mitul Shah - Head of Research at Reliance Securities.
SGX Nifty 18,630 indicates a flat-to-negative opening as Nifty futures, on Monday, closed at 18,673. According to experts, the action will be on mid-cap space where most stocks are attractively placed technically. Asian stocks are down in early deals on Tuesday.
“The Nifty midcap index witnessed a faster pace of retracement as it retraced the past four month’s decline in just two months and approached near its all-time high. Further, the ratio line of Nifty midcap/Nifty 500 has recorded a breakout from the cup and handle pattern after five years, indicating acceleration of upward momentum in the broader market,” said ICICI Securities in a report.
The recent consolidation is on the back of improving market breadth as currently, 60% of the stocks of the Nifty 500 universe are trading above 200 days SMA compared to April end reading of 48%, highlighting broader market participation, it further said.
“In the current scenario, after four months’ decline, the index resolved higher over the past two months and now just shying away 2.5% from its all-time high. Hence, dips should be used as incremental buying opportunities to ride the next leg of up move towards 18,900 in coming months,” it added.
Profit taking on the cards
Analysts expect profit-taking to happen soon. “The overall chart structure of the index continues to remain positive as the index has been trading above-mentioned key averages with improvement in the overall breadth of the market,” said Rohan Shah, head technical analyst, Stoxbox. Adding, “However, traders need to be mindful at this juncture for fresh buying as momentum indicators has turned overbought and profit booking cannot be ruled out.”
“Globally, the Fed minutes, meanwhile, have offered some soothing words, indicating that additional policy firming may not be required as it could take a toll on growth. But at the same time, Fed members acknowledged the challenge on the inflation front, maintaining that the fight against rising prices is far from over,” Mutual Shah added.