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Indian markets and US showed divergence in their behavior this week. While the US was on its journey to making all time highs, Indian markets were experiencing a correction. Fed’s comments on leaving interest rates unchanged and their plan to continue purchasing bonds indeed restored momentary confidence amongst investors but the behavior of bond market was distinctly opposite.

Reaffirmation of their dovish stance moderated market’s concerns. However, it was short-lived and in spite of his confident comments, bond yields along with commodity prices across the globe saw a spike. It appears that all the optimism was already discounted for by the markets.

Apart from rising yields, Indian indices are facing uncertainties from a second wave of coronavirus and ascending retail inflation. These concerns have gradually dented market’s sentiment and added to the pressure. Even though the number of Indians getting vaccinated is increasing, market participants have turned wary of equities. Foreign investors too have become net sellers in the current month on some days.

This suggests that bulls are losing their grip and are unable to hold the market. On the contrary, retail investors are flooding D-Street with liquidity mainly through primary markets. The six IPOs from this week witnessed excessive funds being allocated just for its subscription. The overall set-up of the markets is currently portraying caution. Investors are advised to remain invested for the long term with 5-10 year horizon while medium term investors can make aggressive entries in piecemeal once markets start showing signs of stability.

Event of the Week

The DFI bill of 20,000 crore was cleared by the Union cabinet this week with an intention to provide finance exclusively for infrastructure projects. The objective is to attract further investments and lend approx. Rs. 5 lakh crore over the next 3 years. This bill is expected to benefit infrastructure projects with long gestation periods as the funding will ensure that they are not left dry due to any financial constraints. The progress augurs well for our economy wherein infrastructure development is the heart of a virtuous economic cycle. Therefore, hopefully a strong financial-backing in the form of DFI will be able to stimulate further growth.

Technical Outlook

Nifty50 index closed on a negative note for the week after witnessing selling pressure throughout the week. The index broke its range of 14,450 to 15,350 but if this break down sustains in the week ahead then only markets can go lower. Otherwise, if markets stabilise at the current levels then Nifty can regain its consolidation within the said range. But any decisive break from these levels can take the index further down to 14000 in the short term. Traders should keep appropriate stoplosses while taking positions as markets are currently standing at critical levels.

Expectations for the Week

A fear of rise in COVID-19 cases is again at the top of an investor’s mind as any new development can impact supply chains and sales of corporates. Furthermore, bond yield movement should also be on one’s radar as it will be a key variable which can dictate future equity movement. There are still some more IPOs in pipeline which can cloud markets for liquidity. Investors are advised to keep sufficient liquidity which can help to take advantage in case of any healthy correction. Nifty50 closed the week at 14744, down by 1.91%.

Nirali Shah is head of equity research at Samco Securities

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