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Nifty close to key support, may see brief bounce-back

Some market experts say the markets may have overreacted to the escalation in Ukraine and US Federal Reserve’s rate hike and expect the Nifty to find support at 17,166, against its Friday closing of 17,327 (Photo: Bloomberg)Premium
Some market experts say the markets may have overreacted to the escalation in Ukraine and US Federal Reserve’s rate hike and expect the Nifty to find support at 17,166, against its Friday closing of 17,327 (Photo: Bloomberg)

After the recent stock market carnage, which sliced 4% off the Nifty index in just six sessions, a short-term bounce back could be around the corner, three market experts said

MUMBAI : After the recent stock market carnage, which sliced 4% off the Nifty index in just six sessions, a short-term bounce back could be around the corner, three market experts said. They believe the markets may have overreacted to the escalation in Ukraine and US Federal Reserve’s rate hike and expect the Nifty to find support at 17,166, against its Friday closing of 17,327.

“When you fall sharply, and sentiment everywhere appears to be excessively gloomy, you get a bounce either due to technical reasons or from a sliver of positive news or even from a ‘no news is good news type of situation, which leads to bears scurrying for cover, for the time being at least," said Rohit Srivastava, founder of IndiaCharts, a technical analysis company.

Both Srivastava and Manoj Murlidharan, vice-president of derivatives at Religare Broking, expect the 29 August low of 17,166 to act as strong support. From this level, the market soared to a high of 18,096 on 15 September before tanking 769 points or 4% over six sessions to 17,327 on Friday.

While Srivastava said the Nifty might climb to 17,600-17,700 after this support is tested, Murlidharan said it might get strong support at 17,166-17,000, from where it could re-test 18,000, underscoring that the market was close to its support.

Foreign portfolio investors (FPIs) sold a provisional 7,075 crore worth of shares over two sessions through Friday after tensions rose in Ukraine and the US Fed delivered a third straight 75 bps hike to tame runaway inflation, putting investors globally on risk-off mode.

Besides cash market sales, FPIs are cumulatively net short on Nifty and Bank Nifty futures by 99,946 contracts—the highest since the 16 June figure of 1,46,604 shorts—and on stock futures by 80,816 contracts. This data shows they have hedged their cash market portfolios against downside risk—if the cash shares fall, the shorts on the stock or index futures offset their losses in cash.

“Being short stock futures on an aggregate basis shows the mood among FPIs is sombre as they are normally bullish stock futures," said S.K. Joshi, executive director at Khambatta Securities. “If they sell in cash, they buy stock futures, so they don’t lose on the potential upside; or, if they want to hedge cash market positions, they sell stock futures. But if they sell cash shares and stock futures, then they are quite bearish. At such times, even no bad news situation can result in a short-covering bounce, which I think could happen sooner than later."

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