FOMO among FIIs may fuel a further rally in the Indian equity markets

It was a second consecutive week when Indian markets witnessed a strong rally thanks to easing geopolitical tension, a fall in crude oil prices, the inline outcome of the US Fed meeting, and short covering.

FIIs who were selling relentlessly for the last five months comeback last week with some buying and it will be interesting to see how the market will perform when they continue their buying. In the last 5 months, they have sold more than 2.3lac crore in the Indian equity market which is their higher ever selling. Earlier, their highest selling was at the time of the global financial crisis in 2008 which was around 1.3 lac crore. The interesting point here is that in 2008, Nifty and Sensex had corrected 60-65% due to selling of 1.3 lac crore by them but this time, Nifty and Sensex only corrected around 15% despite much higher selling by FIIs. Domestic money shows strong resilience this time and we are no longer fully dependent on FIIs' flows. Our markets are in a much better shape compared to most of the emerging markets and we have witnessed a strong rally from lower levels therefore there might be some feeling of missing out among FIIs and they may come back aggressively in the Indian markets that may fuel a further rally in our market.

The market has already factored in that the Russia-Ukraine issue may end soon however news flows related to this issue may continue to cause some volatility in the market.

Technically, Nifty is giving proper follow-up of bullish engulfing candlestick formation on weekly chart whereas it managed to close above its 200-DMA and 50-DMA however 100-DMA of 17380 is an immediate hurdle; above this, we can expect a further strength towards 17600/17800 levels. On the downside, 17200 should act as an immediate support level while 200-DMA of 17000 will be a strong base at any pullback.

Banknifty also witnessed a strong pullback from lower levels however 36700-37300 is a critical resistance area and if it manages to take out this area then we can expect a short-covering rally towards 38000/38500 levels. On the downside, 36000 is immediate support while 35500/35000 are the next support levels.

If we look at the derivative data then FIIs' long exposure in the index future has moved to 57% and the put-call ratio has jumped to 1.33 level, both are indicating bullish positioning of the market. If we look at the OI distribution then put writers are showing strong confidence at the 17000 level.

*Santosh Meena, Head of Research, Swastika Investmart Ltd.