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Foreign institutional flows will continue to play a key role in the direction of stock markets in the week ahead in the absence of major events. With the Nifty struggling to break above the key hurdle of 6,200, analysts say it would require a fresh bout of sizeable flows to push markets up as domestic investors continue to sell at higher levels.
Benchmark indices, which ended at their highest close since November 2010 last week, clocked the fifth straight day of upsides on Friday, but gains were capped. The Nifty attempted to cross 6,200 thrice last week after rallying almost 13 per cent from its lows in April. The index closed at 6,187 on Friday
"I don't have conviction in this rally as it is not backed by fundamentals," said Daljeet Singh Kohli, head of research, India Nivesh Securities. "Earnings have been muted. There has been a slight improvement in the bottom line (profit) due to easing raw material costs but otherwise there has been no material difference," he said.
Large companies like Coal India, State Bank of India and Jet Airways are set to report their March quarter earnings next week, but the results are unlikely to influence the direction of the market, fund managers said.
"Some bad numbers may get punished by the markets but will not affect the overall market," said Ravi Gopalakrishnan, executive director and chief investment officer-equity, Canara Robeco Mutual Fund.
Technical analysts, including those in Bank of America Merrill Lynch, are more optimistic about the market's prospects in the near-term than those tracking earnings and valuations.
"The S&P BSE India Sensex Index is breaking out from a potential two-year cup-and- handle pattern. This is bullish and a sustained move above 20,150 would confirm this pattern and likely propel the Sensex to new all-time highs above the January 2008 high of 21,207," said Bank of America Merrill Lynch analysts Stephen Suttmeier and Jue Xiong in a client note. The Nifty's all-time high was 6,357 in January 2008, which is about 2.8 per cent away from Friday's closing. The Sensex is about 4.5 per cent or 900 points away from its record levels.
"Based on the current liquidity scenario, it is possible that the markets may cross the previous high of 6,357," said Shardul Kulkarni, senior technical analyst with Angel Broking.
Foreign institutional investors (FIIs) have been net buyers for 21 consecutive sessions as of Friday, taking their net purchases for 2012 to about $13 billion (Rs 71,538 crore). In 2012, they bought to the tune of $25 billion. But their domestic counterparts have been selling continuously.
Hemant Nahata, senior research analyst at IIFL, cautions that markets are more likely to take a breather with the Nifty around 6,200.
"At that level, the markets could possibly take a breather and correct to 5,940-levels. However, continuing liquidity push can result in just a shallow correction," said Nahata.
If the market closes below 5,970, all bullish bets should be squared off, Kulkarni said.
Market participants do not expect the warning by ratings agency S&P on India's credit outlook on Friday to have an impact on stocks on Monday. "There were no incremental negatives in the commentary and hence it will have no (further) impact on the markets," said Gopalakrishnan.
