The correction seen by domestic equities in seven consecutive sessions indicates that investors have factored in a 50-basis-point hike in the repo rate by the RBI.
But what investors are apprehensive about is the tone and outlook on growth and inflation that Governor Shaktikanta Das will offer in the backdrop of global macroeconomic headwinds.
Historical data suggests that equities have seen a relief run after seven days of fall, but this time the reversal hinges upon RBI’s remarks, said Kunal Shah, senior technical and derivatives analyst at
Derivative analysts believe that any unpleasant commentary from the governor could roil the market and trigger a further sharp correction, taking the Nifty50 to 16,300-16,400 levels.
Ending lower for the seventh straight session, the benchmark indices marked their longest losing streak since February. The Nifty50 ended 0.2% down at 16,818.10 points.
In the September series, the 50-stock index has shed more than 4%, as FIIs turned bearish due to increasing concerns of a recession in the US amid steeper rate hikes. FIIs have net sold Indian equities worth more than $964 million so far in September.
Analysts pointed out that the net long-to-short positions ratio of FIIs in index futures has declined considerably. About 79% of their total positions in index futures is on the short side.
Nifty50 has been repeatedly testing the lower support of 16,800 levels, but was not gaining momentum on the upside, said Nagaraj Shetti, technical research analyst at
“This is not a good sign, and this reflects that the said support could be broken on the downside soon,” he added.
In case the RBI sounds less hawkish, then analysts see scope for a trend reversal but have projected for limited upside since global uncertainties prevail.
“Even if we see a reversal, I don’t expect a run-away rally because selling pressure in frontline stocks prevails, and we are getting affected more by the global events,” said Raj Deepak Singh, head – derivatives,
Singh expects Nifty50 to face a stiff hurdle at 17,500 points in case of an up move.
Shah of LKP Securities also, said that a sustained upmove for domestic equities would take place once the dust on the global front settles and the Nifty decisively moves above 17,200-17,300 points.