Market Outlook Next Week: Bulls Seek Some Rest Ahead of F&O Expiry

Indian stocks ended lower on Friday, with the benchmark Nifty 50 index posting an eight-game winning streak, as investors locked in profits after the strong rally. The NSE Nifty 50 index closed down 1.1% at 17,758.45, posting its biggest percentage decline in nearly two months. The S&P BSE Sensex fell 1.08% to 59,646.15 in its first fall in six sessions. The decline marked the index’s largest percentage loss since June 22. Still, both indexes posted their fifth week of gains, with the Nifty 50 adding 0.34% and the Sensex 0.3% for the week.

Santosh Meena is Head of Research at Swastika Investmart Ltd.

It was a fifth consecutive week of gains for the Indian stock market on the back of FII buying and short hedging. However, strong profit bookings were seen in Friday’s trading session as global signals were jittery. This week we have the August F&O expiry where the bulls are looking for rest after gaining over 6% in the August series. There aren’t many triggers, but global signals, the August F&O expiry and FII behavior will be important factors in the direction of the market.

Technically the Nifty is stopping near the psychological hurdle of 18000 while 18000-18100 is the resistance zone and there is a risk of profit booking as most momentum indicators are showing an overbought reading but 17700 is immediate and important support that the bulls will try to protect.

Below 17700, profit booking may see an extension towards the next demand area of ​​17450-17200.

Bank Nifty is taking profits from the 39,750 level but 38,800 is an immediate support level where we can expect a bounce while if it slips below the 38,800 level, 38,300-38,000 will be the next demand zone.

According to the options chain, 17,900-18,000 strike calls hold the highest open interest which acts as an immediate resistance zone while 17,500 will act as immediate support. FII’s long exposure to index futures stands at 48%, which is neutral, but the PCR has fallen to an oversold level of 0.88.

Ajit Mishra, Vice President – Research, Religare Broking Ltd

Markets ended slightly in the green last week as Friday’s profit taking pared all gains. The tone was bullish for most of the week, following supportive global markets and continued buying from overseas investors. However, the last day’s decline engulfed the gains of the last 3 sessions as participants preferred to book profits on the table. As a result, the benchmarks, Nifty and Sensex, lost the majority of the weekly gains and settled at 17,758 and 59,646 respectively. Most of the sector indices traded in tandem and finished flat or slightly higher. However, real estate and consumer staples managed to post decent gains. Amidst everything, the broader indices, midcap and smallcap, also recorded profits.

In the coming week, the expected expiration of derivatives will keep attendees busy. Also, global signals, especially from the United States, and foreign flow figures will remain on the radar.

The markets could see a consolidation after five weeks of successive rises and that would be healthy. We have hardly seen any major declines in the index in the recent consolidation phases, but much will depend on the performance of the US indices next week when we still see room for further upside. We believe the 17,300-17,600 area would provide a cushion for Nifty next week, while a bounce towards the 17,850-18,100 area could attract profit bookings. It is prudent to focus more on risk management, as the correction/consolidation of the index usually derails the momentum even in the best performing sectors. For new positions, we suggest favoring less volatile stocks until the trend resumes.

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