FII flow, bond yields among key factors that will guide market this week

NEW DELHI: Despite a buy-on-dips trend in the market, benchmark indices dropped sharply for the week, with most of the damage coming on Friday when they suffered their biggest fall in 10 months.

Nifty ended lower by 3 per cent for the week. On the sectoral front, except metals which ended with strong gains, all the other indices ended with losses wherein auto, banking and IT were the top losers. Interestingly, the broader market continued to outperform the benchmark.

This week, much like the last one, global cues will be of vital importance. Moreover, investors will also keep an eye on FII inflows, which has turned negative as rising bond yields are making equities unattractive.

“Markets will first react to the GDP data which came in after the market on Friday. The economy grew marginally in the third quarter at 0.4 per cent, after facing a contraction in the previous two quarters. Going ahead, the rising bond yields continue to remain a key concern for equity markets worldwide. Although the recent Fed statements have been comforting,” said Ajit Mishra, VP – Research, Religare Broking.

Key factors that will guide market this week:

Bond yield: Rising bond is the biggest concern for equity and debt investors right now as it threatens a selloff in both markets. Yields have been rising despite assurances from central banks that they will continue supporting markets. However, the likely rise in inflation is giving the creeps to traders.

GDP data: India is finally out of technical recession. After two quarters of negative growth, the country reported a marginal rise in GDP for the December quarter. Although most of it is already priced in, the numbers will surely give hopes to the investors about the prospects of the economy.

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Auto sales: Vehicle markets will publish sales data from Monday onwards, which will be tracked by investors. Demand for the segment has been continuously improving and February’s numbers may lead to stock specific movements in the auto sector.

PMI data: On the economic front, Markit Manufacturing PMI and Markit Services PMI data are scheduled on March 1 and March 3, respectively. Both data will further give an indication of demand at factory level.

Commodity prices: Global rise in commodity prices is also adding to the looming inflation worry. The increase in commodity prices would translate into higher manufacturing cost which in turn would lead to a rise in CPI. However, it may come as a further boon for metal and commodity stocks, which have been rallying for a while now.

Crude oil: Rising crude oil may have come as a good news from stockholders of oil explorers, but it has the potential to shake India’s fiscal math. Market will keep an eye on the prices as it could derail the economic recovery process.

FII flow: On Friday, foreign investors withdrew a net Rs 8,295.17 crore from Indian equities. This is despite the fact that MSCI changes, which is applicable since Friday end, are bringing a huge sum of money to the market. The market rally has been heavily supported by FIIs. So, any more outflow will result in more downside for the indices.

Technical outlook: Nifty50 index closed negative, confirming the bearish engulfing pattern formed in the week earlier. Since Nifty remains overbought, confirmation of the bearish signal with a bearish evening star on the daily chart indicates further caution.

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“Markets have also breached the immediate support of 14630 and Nifty is likely to decline further till the next cushion support at 14250 in the short term. Therefore, traders are advised to remain light on the long side,” said Nirali Shah, Head of Equity Research, Samco Securities.


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