Markets Next Week: Selling Pressure To Emerge At Higher Levels

This week saw the Sensex cross the 37,000 points mark, while the Nifty scaled past the 11,000 points mark, after a long time.

Indian markets have staged a superb rally since Jan 30. There has barely been any profit booking and the rally has been largely in select bluechip stocks. In fact, what we have seen is a massive sell-off in small and midcap stocks, while just three stocks namely Reliance Industries, TCS and Infosys seeing a spectacular rally.

According to reports there have been some good inflows through Foreign Portfolio Investors, as part of global allocation and this may have led to some buying interest in stocks.

Remember, global ETFs are likely to park their money into heavyweights, which may have been one reason for the large-scale buying interest in some stocks, most of which are heavyweights.

The Reserve Bank of India this week surprised by delivering a rate cut. While inflation as we all know has been very low, the markets were expecting the RBI to maintain a status quo policy this time and cut rates in its next policy meet.

However, the rate cuts did little to improve market setiments. Following the cut, markets gave up gains on Thursday.

The ADAG group stocks were in terrible shape this week. This was after RCOM announced that it would file for bankruptcy. In just 3-4 trading sessions, some of the group company stocks lost as much as 40 per cent. Some NBFCs sold heavily into the Reliance ADAG group stocks inflicting heavy damage.

On Friday, however, they saw some recovery in their share price, following short covering. Going ahead, markets are likely to track global cues.

Inflows into mutual funds that so far supported the markets is also falling. In fact, according to reports inflows into equity mutual funds, including equity-linked savings schemes, fell to their lowest in 24 months in January.

Equity inflows declined 6.8 percent over the previous month to Rs 6,158 crore in January, according to data released by the Association of Mutual Funds in India. That's a third straight monthly decline.

This is not good news for the markets, because inflows into mutual funds have so far been supporting the market.

Next week, much of the market sentiment would depend on FPI inflows. These tend to be very volatile and global markets could determine the Indian market movement. it's best to invest in small amounts ahead of the General Elections due in two months time.

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