Sensex, Nifty could witness biggest May decline since 2012. What next?

Equities fought volatility and surged last week, as stocks danced to the tunes of global cues, domestic news flow and corporate earnings. 

Among indices, financials lead from the front, while a steep cut in excise duty on fuel prices and capping of sugar exports, saw stocks from these sectors react negatively.

Eventually, the BSE Sensex moved in a band of 1,500 points, and finally ended the week with 1 per cent gain. The NSE Nifty, on the other hand, was up 0.5 per cent, while the Bank Nifty surged nearly 4 per cent.

However, despite last week’s gains, the benchmark indices may end the current month on a negative note, marking their biggest declines in May since 2012.

The BSE benchmark Sensex and the Nifty were down close to 4 per cent so far this month, primarily dragged down by the persistent FII selling. 

Foreign investors have, now, been net sellers for eight straight months and have net sold stocks worth more than 52,000 crore rupees so far this month.

According to VK Vijayakumar of Geojit Financial Services, FPI selling is showing mild signs of exhaustion. DII and retail buying together with overwhelming FPI selling along with short covering can trigger a near-term rally. High quality large-caps can stage a rally, says Vijayakumar, adding that leading banks are safe bets. 

Against this backdrop, Business Standard’s Avdhut Bagkar shares how the banking stock is placed on the charts.

Going ahead, markets will look at Q1CY22 GDP number, slated to be announced on Tuesday, for fresh cues on the economic recovery.

As per a Reuters poll of economists, India’s economic recovery from the Covid-19 pandemic likely stumbled again in the first quarter of this year primarily due to Omicron-related restrictions and higher inflation.

‘Growth in Asia’s third-largest economy was pencilled in at 4.0% for the January-March quarter from the same period a year ago, down from 5.4% in Q4 2021. If realised, that would be the slowest in a year and a third consecutive quarter of weaker growth’.

Amid these triggers, technical charts suggest that the NSE Nifty managed to close above its 20-DMA for the first time since April 13, 2022. The Nifty may look to target the trendline resistance around 16,750 in the near term. 

On the downside, the index can expect support around 16,200-level.

As we draw curtains on the Q4 earnings season, stocks like Aurobindo Pharma, Delhivery, IRCTC, Jindal Steel and Sun Pharma could see some action ahead of earnings on Monday.