What should be investors strategy in markets for the coming week? Key factors here

On Friday, Sensex ended at 61,663.48 lower by 87.12 points or 0.14%, while Nifty 50 closed at 18,307.65 down by 36.25 points or 0.2%. A broad-based selling pressure was seen with auto stocks taking most of the beating followed by consumer durables, capital goods, and oil & gas stocks.

In the week ending November 18, markets did have a glorious moment with Sensex and Nifty 50 crossing over 62,000 and 18,400 marks before correcting while tracking global markets.

For the current week’s performance, Vinod Nair, Head of Research at Geojit Financial Services said, “During the week, the direction of the domestic market was largely driven by the trend of global peers. Global markets were surging in expectation that the Fed will scale back its aggressive rate hike in reaction to easing U.S. inflation data. However, the euphoria was dashed by better U.S. retail sales in October and aggressive remarks from Fed officials.”

He further added, domestic CPI inflation has moderated to 6.8% owing to declines in food and commodity prices, however, it remained above the RBI’s tolerance level. The CPI is estimated to fall within the range from Q1 FY24.

Meanwhile, ICICI Direct in its note pointed out that Indian benchmarks snapped a four-week winning streak as profit booking set in near all-time highs. Nifty closed at 18307, down 0.25% while Midcap and small-cap indices declined >1% for the week.

Coming to FIIs, the foreign investors were net sellers on November 15, 16, and 18 — with a cumulative outflow of ₹1,358.58 crore in the equities during these three days. However, FIIs made buying on November 14 and 17th cumulatively to the tune of ₹1,707.78 crore. Thereby, overall, in the week, FIIs were net buyers with an inflow of ₹349.2 crore. This is far lower compared to the weekly inflow of ₹3,460.81 crore between November 4 to 11th.

Furthermore, the rupee extended its losses to end at 81.6850 against the US dollar on Friday compared to 81.65 per dollar on the previous day. Except for Tuesday, the rupee has declined for the most of the current week against the American currency.

What should investors do in the coming week?

Nair said, although domestic macroeconomic indicators and FII inflows are favorable, negative vibes from global markets and premium valuation compared to peers, the domestic market traded with caution.

According to the Geojit expert, in the absence of major domestic triggers, the domestic market is expected to continue its focus on global trends. Considering the current market scenario, a balanced approach with a mix of equity & debt, 60:40 for an average risk-averse investor, is advised as interest yields are becoming attractive, and the economy is slowing.

ICICI Direct expects Nifty to undergo healthy consolidation after four week’s 9% gains led weekly stochastics in the overbought zone (97) and make higher base formation above 17900, before eventually challenging life highs of 18600 in the coming weeks. Its note said, “Use dips as incremental buying opportunity.”

As per ICICI Direct’s note, index rallies are getting bigger with shallow retracements after a breakout from the past one-year down trending channel indicating inherent strength. Further, sharp reversals in the Dollar index, and US yields have helped to taper down anxiety around further aggressive rate hikes which is supportive for equities globally and also domestically.

Also, brent crude prices (- 6% for the week) continue its well channelled downtrend, while India’s volatility index (VIX) continued its lower high-low for the seventh week and stayed at a multi-month low indicating low-risk perception amongst participants, the stock brokerage’s note stated.

On small and midcaps, ICICI Direct’s note said, “over past couple of weeks, Midcap and small-cap indices have lagged large-caps. Structurally they are undergoing higher base formation above their 100 and 200-day averages while they have retraced their 11-week rally from June lows by just 38% in equal time. Shallow retracement indicate inherent strength and we expect both indices to resume uptrend in December as they approach price/time maturity of correction.”

Structurally, ICICI Direct remains positive on BFSI, Telecom, Capital goods, PSU, and IT which can contribute to upsides. Its preferred picks in large caps are Kotak Mahindra Bank, HDFC Bank, HCL Tech, Reliance Industries, L&T, Ambuja Cement, Ultratech Cement, and Hindalco. Meanwhile, in midcaps, the brokerage prefers Coforge, HEG, JK Cement, Texmaco Rail, Mahindra CIE, HAL, Redington, and SKF India.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.