Uncertainty and volatility to dominate last week of financial year’s trading

It was an extremely tough and volatile week at the bourses. Markets were all over the place and the small net change at the end of the week, does not convey the overall movement or the sentiment that prevailed.

Markets gained on two of the five sessions and lost on three. BSESENSEX lost 462.80 points or 0.80 per cent to close at 57,527.10 points while NIFTY lost 155 points or 0.91 per cent to close at 16,945.05 points. The broader indices saw BSE100, BSE200 and BSE500 lose 0.97 per cent, 0.93 per cent and 0.99 per cent respectively. BSEMIDCAP and BSESMALLCAP lost significantly more at 1.98 per cent and 1.48 per cent respectively.

The Indian Rupee gained 7 paisa or 0.08 per cent to close at Rs 82.48 to the US Dollar. Dow Jones gained on four of the five trading sessions and lost only on the day FED raised interest rates. Dow Jones was up 375.55 points or 1.18 per cent to close at 32,237.53 points.

The US FED raised interest rates by 25 basis points on expected lines. The rate band is now at 4.75 per cent - 5.00 per cent. This is the ninth consecutive rate hike since the FED began raising rates from March 22. Suffice to say that because of the high inflation, rates which were at 0-0.25 per cent one year ago, are now at 4.75 per cent -5.00 per cent. Further, Jerome Powell, post the announcement has not said or conveyed that there would be an immediate pause going forward. There may be further hikes and then a pause. Keep your fingers crossed. A point to be kept in mind is that 2/3rd of the Quantitative Tightening has been returned post the bank failure.

After the two banks went down in the US followed by the Swiss bank Credit Suisse, it's now the turn of the German Bank, Deutsche Bank. Shares of the bank have crashed and there is talk on the street that the German regulator would have to step in and ensure a bailout of sorts. It sure is a tough time for the banking sector globally and inflation, while it has peaked off, has not fallen to levels which could be construed to be comfortable.

The Finance bill was passed and there were changes which have been made concerning the capital markets. STT has been raised on Futures and Options by 25 per cent. The rate has been raised from Rs 1,700 to Rs 2,100 per crore. This would in the short term effect volumes on the exchanges. Secondly the contentious issue of taxing the return of loans or debt to the parent in the case of REITs and INVITs has been resolved. The tax would only apply once the initial loan is repaid in totality and taxed on further repayments.

The trading highs and lows made during the week were at 58,418 and 57,084 on BSESENSEX and 17,207-16828 on NIFTY. The lows were made on the very first day of the week, while the highs were made on Wednesday. What is significant is the fact that markets failed to challenge the resistances. The intraday movements were big but the net change and the cumulative net change for the week were quite small. This also gives a feeling that no one is willing to take long positions, hence there is profit taking or selling at the latter half of the day.

The week ahead has a trading holiday on Thursday the 30th of March and hence March futures would expire on Wednesday, a day earlier. The present value of NIFTY futures is down 566.20 points or 3.23 per cent for the series. Considering the net change of last week, this is a big difference and it would be quite apparent that the bears would have the series. It must be noted at this point, that Wednesday would be the last trading day for the current financial year 2022-23, and trading on Friday the 31st March would be accounted for in the next financial year.

Coming to the week ahead, key support levels would be at 16,600-16,650 on NIFTY and 56,500-56,650 on BSESENSEX. If this does get broken, we would have strong support a little lower at 16,400-16,450 and 56,000-56,150 respectively. On the resistance side, the first level would be 17,150-17,200 on NIFTY and 58,150-58,350 on BSESENSEX. In case this does get violated, the next levels would be at 17,300-17,350 on NIFTY and 58,600-58,750. The second level needs tremendous buying to be touched or violated. A key pivot for the markets in the week ahead would be 17,050 on NIFTY and 57,800 on BSESENSEX.

The strategy for the week would be to sell on any rallies and refrain from overnight positions on most days particularly on Wednesday, when we have a holiday the following day. The midcap and Smallcap segments would continue to be under pressure and one must remain cautious in them.

Trade cautiously.