Domestic markets are expected to open flat with a negative bias on Tuesday after a long weekend. Analysts expect the market to remain volatile ahead of the monthly F&O settlement. As fiscal 2024 comes to an end, adjustments in accounts will also keep the market volatile.
Experts said stocks are likely to gain towards the weekend due to mutual funds’ NAV propping. However, with Friday being a holiday due to “Good Friday,” analysts expect trading interest to remain low.
The domestic markets remained volatile during the week, with the expectations and outcome of the FOMC meeting being the focal point. With the FOMC meeting indicating rate cuts in its announcement, sentiment improved marginally towards the end of the week.
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“Going forward, volatility is expected to be at the forefront as valuation-related concerns still linger. The earnings season will be critical to gauge the actual “froth” in the markets,” said Joseph Thomas, Head of Research, Emkay Wealth Management.
Gift Nifty at 22,125 against NIfty (April) futures close of 22,335.35 and Nifty (Mar) futures close of 22,165.45 signals a downward bias for domestic markets. However, equities across the Asia-Pacific region were mixed in early deal Tuesday.
Analysts expect the market to remain stable and may recover in the second half of the trading session.
However, the focus would be on foreign portfolio investors, who, of late, turned sellers. They said debts will attract more inflows going forward.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said: “An interesting feature of the foreign portfolio investment in India this fiscal is the steady growth in debt investment in sharp contrast to the volatile equity investment. This rising trend in debt investment is evident in March, too, with inflows of ₹13,223 crore in debt through 22nd March.
The fundamental reason for this sustained FPI flow into debt is the inclusion of Indian bonds in the JP Morgan EM Bond Fund and Bloomberg Bond Index, which is expected to bring in around $25 billion. This investment will begin only by June 2024, and, therefore, FPIs are doing some front-running in view of this potential investment, he said.
FPI inflows into debt are likely to continue going forward. However, a sharp surge in debt flows is unlikely since the US bond yields have also risen in recent days. If the differential between developed market bond yields, particularly US bonds, and Indian bond yields decline, the debt inflows will moderate, he further said.
Some analysts expect a recent strong correction in mid- and small-cap has provided buying opportunities at select counters.
According to Emkay Global Research, “the correction in March is an entry opportunity from a 6-12 month perspective, in our opinion.”
Stretched valuations catalysed the fall, and there are worries about liquidity risk in SMID funds. Fundamentals remain strong with broad-based earnings growth continuing in FY25, albeit with some deceleration, it said, adding that “We expect the market to rebound in 3-6 months, when SMIDs would start to outperform again and the ‘hide in large-caps’ trade would unwind.”