This week, Indian markets defied global trends and continued their upward trajectory, with benchmark indices reaching new highs, posting a gain of 2.16 percent. This resilience comes despite a mixed performance in global markets, showcasing the robust strength of the Indian market.

A significant highlight of the week was the notable shift in foreign institutional investors' (FII) positions in the derivative market. From holding record-high short positions ahead of the elections, FIIs have now transitioned to holding record-high long positions, the highest seen since 2017. This reversal reflects renewed confidence in the Indian market's potential.

The rally was broad-based, with the IT and financial sectors continuing to display strength. Notably, stocks from the oil and infrastructure sectors also joined the upward movement, contributing to the market's overall gains.

On the global front, investors are eagerly anticipating the Fed Chair's upcoming speech. Recent US jobless claims and weak housing data have increased expectations of a potential rate cut in September, adding to the global market's mixed signals.

As we enter earnings season, sectoral position shifts are anticipated to align with the forthcoming results calendar. Investors will be keenly watching for these changes, as they could provide further insights into the market's direction.

Start of a new upmove

The Nifty index has recently broken through the resistance line, signaling that the upward-slanting consolidation since January 2024 is complete and a new upward movement has begun. Supporting this view, Nifty heavyweights are also breaking out from large consolidations. While occasional 2-3 percent corrections may occur, a deeper correction seems unlikely given the recent breakout. On the downside, 23,650 will be an important support level. As long as this level holds, the bulls will maintain the upper hand in the short term.

The 40-day Advance/Decline (A/D) Ratio, a medium-term indicator, is not close to reaching the second red line. Historically, a significant correction is preceded by the 40-day A/D ratio forming a negative divergence after hitting the second red line. Although we currently see a divergence (see chart Advance Decline ratio), it doesn't match previous patterns where divergence occurred after hitting the second line. Given the Nifty's breakout above the resistance line, we can expect market breadth to improve, potentially rising towards the second line, indicating that there is still room for further upside.

The setup of the percentage of stocks above the 20-day moving average (20DMA) indicator (see chart Stock strength) is very similar to the 40-Day Advance/Decline (A/D) Ratio, with one key difference: the 20DMA indicator has already touched the second line. In bull markets, we typically see multiple divergences before a top occurs.

Historically, negative divergences were evident for many weeks or months before the Nifty index experienced any significant correction. In such scenarios, the 20-day moving average serves as a reliable trailing reversal level to ride the bullish trend. The 20DMA is currently at 23,322 and will continue to rise each day.

Foreign Institutional Investors' (FII) long positions are at their highest since 2017 (see chart FII Net Index Futures position). The key question is whether this represents a sustained range shift to higher levels or a one-off occurrence. It's difficult to determine at this point. Analyzing all data points in conjunction with the overall trend is crucial rather than in isolation.

The Nifty index has broken out from its upward-slanting consolidation this week, suggesting that the elevated long positions by FIIs in index futures may persist, and the trend may continue. On the downside, the 23,650 – 23,350 range will be important support levels. As long as these levels hold, the short-term and medium-term bullish trend will likely remain intact.

Sector Rotation

The market had a positive week, but participation from various stocks and sectors was mixed. The Daily Relative Rotation Graph (RRG) shows that IT and Financials are currently the best-performing sectors, with Nifty IT, Bank, Private Banks, and Financial Services all in the leading quadrant. These sectors experienced increases in both relative strength and relative momentum.

In contrast, Realty, Media, Auto, and Consumer Durables are in the weakening quadrant due to a decline in relative momentum. However, their relative strength remains positive, suggesting potential setups where momentum might be picking up.

Most other sectors saw declines in relative strength and momentum and are now in the lagging quadrant.

Interestingly, the weekly RRG indicates that the relative momentum for Nifty IT is picking up rapidly. Additionally, Bank Nifty has moved into the leading quadrant on the weekly RRG.

The table below highlights notable short-term shifts in sector performance. For instance, Nifty FMCG has significantly improved from its previous underperformance and is now performing on par with the headline index, indicating renewed investor interest and potential positive developments within the sector.

ector Strength

Source: Quant Lab

Nifty IT continues outperforming the broader market, suggesting underlying strength possibly driven by upcoming earnings reports or positive news in technology.

The Realty sector shows signs of profit booking after a period of strong performance, which could lead to a short-term dip, but the long-term outlook remains positive.

Conversely, the Nifty Auto sector is deteriorating concerningly, and it could become more pronounced in the coming week. Investors should monitor this sector closely for any further signs of weakness.

Certain sectors have consistently outperformed the broader market over a longer 90-day period despite recent short-term fluctuations. For example, Nifty Bank has continued to outperform the headline index over the last three months, excluding last week's performance. Despite recent profit booking, the Real Estate sector remains a long-term outperformer. Additionally, the CPSE index continues to display strength.

Indices and Market Breadth

While the benchmark indices touched new highs, the broader indices underperformed. The mid and small-cap indices gained 0.4 percent each, while Nifty was up 2.16 percent.

Among the sectors, the Energy index rose by 3.3 percent, Oil & Gas added 3 percent, Infrastructure was up 2.79 percent, and the Information Technology index gained 2.7 percent during the week. However, the Realty index lost 2.4 percent, Media slipped 2.3 percent, and Metal declined by 1.7 percent.

Foreign Institutional Investors (FIIs) bought shares worth Rs 4,622.19 crore during the week, bringing June’s tally to Rs 2,037.47 crore, marking the first positive month after two months of net selling.

The top-performing stocks in the derivative segment during the week included India Cements, which gained 26.71 percent, Indus Tower, which rose 11.55 percent, and UltraTech Cement, which closed with a gain of 9.43 percent. On the losing side, NMDC was down 8.77 percent, Oberoi Realty lost 6.37 percent, and Crompton fell 4.97 percent.

Global Markets

The global market showed mixed trends, with the MSCI World market gaining 0.11 percent during the week. US markets traded flat ahead of the earnings season, while Europe’s Stoxx 600 fell by 0.72 percent, largely led by a 1.96 percent decline in France’s CAC 40 amid heightened political uncertainty in the country.

The week's surprise was a 2.6 percent rally in the Japanese market as the Yen continued to weaken, hovering around its lowest levels in 38 years at 160.6 against the dollar. Meanwhile, Chinese markets were down 1.07 percent, and Hang Seng fell by 1.70 percent.

Stocks to watch

Among the stocks expected to perform better during the week are Petronet, ICICI GI, Federal Bank, Ashok Leyland, Dr Reddy’s Lab, Ultratech Cemco, Pidilite, Glenmark, Ambuja Cement, Manappuram, ICICI Bank and Apollo Tyre.