The Indian equity markets are likely to witness a range-bound trend in the coming holiday-shortened week as no major domestic triggers are expected. Analysts predict increased volatility due to the monthly F&O expiry lined up on Thursday.
However, with equity markets closed on Monday for Christmas, volumes could remain lower than average.
Analysts Predict Range-Bound Moves Amid Lack of Cues
“This week, as global cues remain sparse due to the Christmas holiday, domestic market dynamics are expected to steer sector and stock-specific movements,” said Santosh Meena, Head of Research at Swastika Investmart Ltd.
Given the lack of substantial indicators, Meena noted that the December F&O expiry might introduce volatility to the markets this week.
In the preceding week, the BSE benchmark saw a decrease of 376.79 points, equivalent to 0.52%, while the Nifty experienced a dip of 107.25 points, or 0.49%.
This decline followed a remarkable surge in the markets recently, where both the benchmark indices, Sensex and Nifty, reached their all-time high levels on December 20.
Valuations Likely to Remain Elevated
“While India’s equity market valuation is expensive, they may remain elevated due to the increased likelihood of a stable government at the centre.
Additionally, with FPI holdings at a 10-year low and potential foreign buying in the debt market ahead of India’s inclusion in the JP Morgan Emerging Market Government Bond Index, may provide some stability to the INR,” said Jitendra Gohil, Chief Investment Strategist at Kotak Alternate Asset Managers Limited.
Analysts noted that the markets had been on a remarkable run, setting new highs consistently over the past weeks and had entered an overbought territory.
Therefore, it was anticipated that occasional interruptions, such as profit-taking, would occur. Consequently, the week concluded with declines after seven consecutive weeks of gains.
Holiday Mood to Prevail With Stock-Specific Action
“As we enter into the holiday mood, we expect markets to remain range-bound with stock-specific action this week,” said Siddhartha Khemka, Head – Retail Research at Motilal Oswal Financial Services Ltd.
With the Santa Claus rally likely to play out in the US and other global markets, Indian indices may take cues from worldwide trends.
Monthly Expiry Volatility Can’t Be Ruled Out
The monthly F&O expiry on December 29 could bring about volatility in the indices. Analysts suggest caution while trading around expiry sessions.
Rollover in the December series stood at about 88% so far, which is higher than the average rollovers seen in the last three series. This indicates the bullish undertone of the market.
However, any major surprise in the roll-over data on Thursday could lead to volatility spikes.
Lacklustre Cues, Lower Volumes to Cap Gains
“We expect the markets to remain range-bound for the coming week as well. The yearly closure is generally observed to provide an overview of institutional investment-related activity. However, a lack of key triggers and anticipated lower volumes might cap the upside,” said Yesha Shah, Head of Equity Research, Samco Securities.
The market momentum has slowed down as the Nifty consistently breached the 18,000 mark over the past month. Some consolidation or profit-booking at current levels is quite possible as markets pause before restarting the next leg of the rally, analysts said.
Foreign Flow Trends, Rupee Movement Remain Crucial
Trends in foreign fund flows will remain among the major sentiment drivers for Indian equities, especially with equity valuations at elevated levels.
“An improvement in the foreign flow trend would help provide stability and drive the next leg of the rally for the market ahead,” Motilal Oswal’s Khemka said.
Currency movement will also remain crucial as usual. While the Rupee has witnessed a pullback against the dollar recently, slippages from the 72-73 levels could dampen sentiment for equities.
So overall, analysts advise maintaining a cautious stance this week while cherry-picking quality stocks on dips. Focus on risk management as lacklustre cues globally could keep markets choppy in the coming days.