Market outlook: 5 reasons why March F&O series could keep investors on edge

The average daily swing for the NSE Nifty 50 index was 1.45 per cent, the highest in the last 10 months.

The February series was one of the most volatile series since April 2021 expiry, NSE data shows, with the average daily swing for the NSE Nifty 50 index as high as 1.45 per cent (average difference between the day’s high & low). Last year in the April series, the average daily swing was 1.55 per cent and prior to that in the March series was as high as 1.77 per cent.

The mean average for the last 12 months F&O expiry has been 1.19 per cent, with July 2021 series as the least volatile with a daily average swing of 0.77 per cent.

The Nifty50 index has slipped around 3.5 per cent in February F&O series. Analysts expect the March series to be choppy as well given the multiple headwinds that the markets face. At the fundamental level, foreign portfolio investors (FPIs) remain extremely uncomfortable with India’s valuation premium, analysts said, and have sold nearly $11 billion worth of stocks over the past six months.

“In the next few weeks, the India equity market may remain choppy and offer good entry opportunities on large corrections. We recommend investors to focus on domestic cyclical companies such as banks, cement and staffing companies apart from reopening trades including multiplexes. The major risk can come from oil shock for Indian equities as reopening of the global economy may spur demand,” wrote Jitendra Gohil, head of India equity research at Credit Suisse Wealth Management, in a recent note co-authored with Premal Kamdar.

Here are the five major events that could swing markets either way in March:

Russia-Ukraine crisis: The on-going Russia-Ukraine crisis will keep markets on edge. The markets would keep a close eye on the consequential sanctions impacting businesses with Russia, and any spill-over of the impact on the neighbouring European countries. On the positive side, a peace deal could send stocks soaring across the globe.

“Equity markets always react in a magnified manner to the initial events and finally adjust to the fundamental consequences of the events. Global equities – including the Indian markets - may fall another 2 per cent to 3 per cent from the current levels and would start adjusting for the perceived eventual consequences thereafter. After a few weeks, the war either would stop or continue as a proxy war for a longer duration. The global equities would adjust for these eventual consequences within two - three weeks,” said G Chokkalingam, founder and CIO, Equinomics Research.

US Federal Reserve meeting outcome: The US Federal Reserve is scheduled to meet on March 15-16 to review interest rates. Given the inflation rate at a four-decade high, the Fed seems all set to hike rates in the policy meet. According to experts, the markets so far seem to have factored in a 25 basis point (bp) rate hike, any disparity in expectations could result in a knee jerk reaction for the markets.

Crude oil Prices: Brent crude broke above the $100-mark in trade on Thursday, after Russia ordered troops to invade Eastern Ukraine. With global economies battling inflation, soaring oil prices can further fuel inflation and in turn disturb the fiscal math. If the prices remain elevated for long, it will have an impact on corporate earnings growth across some sectors as well over the next few quarters, analysts said.

Assembly polls: The results for the state elections in five states, including Uttar Pradesh, Punjab will be announced on March 10. The BJP is the ruling government in Uttar Pradesh, Uttarakhand and Goa. Although there may not be a direct correlation between the elections and markets, any favourable verdict for BJP in non-ruling states such as Punjab and Manipur could boost the sentiment, whereas any adverse outing in the presently ruled states could be a sentiment dampener.

Financial Year-end portfolio rebalancing: The FIIs have been net sellers in the last few months amid fears of change in interest rate cycle in the US. Given the high magnitude of sales, financial year-end portfolio rebalancing could impact select index heavyweights, and thus the index. Whereas on the other hand, DIIs and retail investors have largely been net buyers – they may want to book profit towards the fiscal year end.