Stock Market Cues to Watch Next Week: Nifty Outlook: Indian equities are expected to remain on a positive footing, with the Nifty’s close above 24,500 reinforcing the bullish setup and keeping the index on track for a move towards 25,000 in the short term and 25,500 over the medium term, according to Jay Thakkar, Head of Derivatives and Quant Research (Vice President) at ICICI Securities.
Thakkar noted that while the Nifty traded largely in a narrow range after Monday’s gap-up opening, it still ended the week with gains of about 0.77 per cent. He said easing geopolitical concerns, a sharp decline in crude oil prices, contained volatility, continued strength in sectors such as IT, auto, FMCG, metals and PSU banks, and sustained short covering by foreign investors in index futures have strengthened the market’s recovery trend. According to him, any corrective moves are likely to be viewed as buying opportunities as long as the Nifty holds above the 24,000 level on a closing basis.
Nifty has closed the week on the positive side gaining approximately 0.77 per cent W-o-W, however post a gap up on Monday the entire week traded quite sideways as the close of Tuesday to Friday was almost similar with plus or minus 50 points, said Thakkar, adding, “Now, since the Index has closed above 24,500 levels the overall set-up remains bullish and with that the base has shifted higher 24,000 levels, whereas, the upside target of 25,000 is intact on a short-term basis and 25,500 on a medium-term basis.”
Sectoral performance and macro tailwinds support the bullish view
Thakkar highlighted that the rebound in Nifty IT continued, with the index recovering nearly 22 per cent from its 52-week lows and ending the week with gains of 2.73 per cent. He added that Nifty Metals also witnessed a strong recovery as the US Dollar Index retreated from recent highs and slipped below the 100 mark.
Overall, Thakkar said market breadth remained healthy across sectors. However, weakness in Nifty Private Bank stocks restricted the benchmark index’s gains, preventing the Nifty from sustaining levels above 24,600.
Thakkar noted, “there was a rise in intraday volatility for the entire week wherein the implied volatility rose everyday and thereafter fall at the end of the day or near the closing time due to the newly introduced CAS mechanism to arrive at the closing price of the stocks and Index, however, the impact of the same has reduced day on day as the market participants are getting used to this new method. Once, there is enough liquidity in the auction session, we believe that the fair price will be arrived and the current rise in implied volatility will also cool down. Overall, the markets are likely to continue moving higher as the disparity concerns are reducing day on day.”
FII positioning and options data signal further upside potential
As per Thakkar, the sectors most likely to drive the Nifty higher in the coming weeks are the Nifty Bank index and the broader market segments, particularly the Nifty Midcap and Nifty Smallcap indices. He said the overall market breadth is expected to remain positive.
Referring to derivatives data, Thakkar noted that the 24,000 strike has the highest cumulative put open interest, making it a strong support level for the benchmark index. On the upside, the 25,000 strike carries the highest cumulative call open interest, which aligns with his short-term target for the Nifty.
Thakkar added, “on a weekly basis, the FIIs were net buyers in the equity cash segment and even in the Index fut they have covered the shorts by almost 28,000 contracts indicating short covering and both of these data is strongly positive. The net shorts in the Index futures have now come down to 1.45 lakh contracts from 2.72 lakh contracts and it still has much more room for short covering which will help the Index to inch higher. So, based on these observations the overall bias remains positive, some consolidation cannot be ruled out but any dips should be utilised as a buying opportunity until 24,000 levels are not broken.”
