Short covering rally may extend

Analysts like Hormuz Maloo of AFco Investments don’t rule out a gap up opening Monday with SGX Nifty last trading at a 170 point premium to Nifty’s Friday close.
File photo | Debdutta Mitra, EPS
File photo | Debdutta Mitra, EPS

MUMBAI: Benchmark indices could extend their short covering bounce, which saw the Nifty post a 405 point gain in the week ended June 24, after two straight weeks of registering losses. The range for this week is 15400-16000, with Nifty closing at 15699.25 last Friday. That’s a 3.8% move from Friday’s close.

Analysts like Hormuz Maloo of AFco Investments don’t rule out a gap up opening Monday with SGX Nifty last trading at a 170 point premium to Nifty’s Friday close. However, levels of 15900 -16000 will act as key resistances. The market will move in step with global peers like the Dow, which also posted a smart closing gain of 2.7% Friday. While FIIs continue to be net sellers in the cash market, they have begun to cover their cumulative bearish bets on index futures - Nifty and Bank Nifty.

For instance, while FIIs have sold a whopping Rs 45841 crore so far this month, making it the highest monthly sale after March 2020’s pandemic induced Rs 61973 crore, they cut their cumulative index futures’ derivatives bets to 1.06 lakh contracts on Friday from 1.14 lakh contracts a day before. Their cash sales have been continuing since October 2021 and has seen the Nifty correct 15.6% from a record high of 18604.45 through 15699 on June 24.

“For the bulls 15700-15750 would act as a key resistance level, while on the flip side 15500 and 15400 could be strong support zones for the short term traders,” said Amol Athavale, deputy VP, technical research, Kotak Securities. “Above 15750, the index could move up to 15850-15925. On the other side, a fresh round of selling is possible only after 15400 and below the same it could retest the level of 15250-15150.”

The Indian markets trade at relatively higher valuations than other Emerging Markets and recent interest rate hikes by RBI to tame surging retail price inflation could pressure fresh investments. However, the recent correction in crude and metals is seen as a positive for net importers like India.

The market will take heart from RBI deputy governor Michael Patra’s statement that retail price inflation is showing signs of peaking and the policy to contain it might not be as harsh as elsewhere. While the relief rally could be broad based, sectors like metals, O&G, power sector and banking could be on traders’ radar.

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