Market watch: 6 factors to look out for this week

After the 1,347-point fall last week that shaved off 11 per cent from the BSE Sensex, will the markets rebound this week? Business Standard spoke to an array of fund managers, investment bankers and brokers over the weekend in search of an answer.

Nobody knows for sure but here is a list of six factors that marketmen will watch out for while walking down Dalal Street this week.

F&O open interest
The rollover of futures and options (F&O) open interest will be the most crucial trigger for the markets this week. Though open interest positions have reduced with brokers trying to square off their exposures, the absolute number still remains rather high.

Open interest in the futures market was over Rs 44,000 crore on May 10. This has been reduced by about Rs 13,000 crore. The expiry of contracts is on May 25. With a lot of positions already squared off, market experts are expecting less volatility.

Key support levels
In the short term, the market should find support between 3,175 and 3,250 for the Nifty and 10,750 and 10,950 for the Sensex. The Nifty ended trade on Friday at 3,247 and the Sensex at 10,937.

Technical analysts are predicting that this could be the end to the long-term bull market.

Net FII flows
The biggest sellers in the market have been hedge funds and foreign institutional investors (FIIs). The argument about dollar inflows moving to safer markets in view of rising US rates still holds true but valuations in the Indian markets have also turned more attractive and the FIIs could use this opportunity to buy stocks cheap. If the FII inflows turn positive, this could be a big sentiment booster.

Domestic funds
In a choppy market, the mutual funds preferred to stay out and not make any big commitments. While fund managers are increasing their cash holding in order to handle redemptions, they still have substantial uninvested corpuses.

If the market stabilises, they could step in and provide the buying momentum. About Rs 10,000 crore worth of new fund offer is waiting to be invested.

Global markets
Though India witnessed the largest fall last week, the trend may reverse if the Asian markets remain positive. If the Asian markets are trading strong, domestic markets would go into early morning trade with positive cues.

It is possible that since the losses in Indian markets were the highest last week, value buying would resume, increasing the likelihood of a positive bounce in local markets.

Commodity prices
With commodity and metal stocks carrying high weightages in FIIs' holdings of emerging markets, there is a direct association between commodity prices and equity movements. If commodity prices, especially that of metals stabilise, the equity markets could get a fillip.