Monsoon onset key to next market direction

Under the shadow of RBI Policy decision on interest rates and global cues, the domestic markets took a breather during the week ended. After briefly scaling past the 18,700 mark, NSE Nifty settled only 0.16 percent higher at 18,563 points and BSE Sensex gained 0.13 percent to end at 62,625 points. However, the broader markets were a bit exuberant and buoyant with Nifty Mid-cap gaining 0.5 percent to end the week at 34,153 and the Nifty Small-cap gaining 1.17 percent. In fact, Nifty Mid-cap touched a new high of 34,534.70 points.

Since April 2023, Nifty delivered returns in excess of 4.1 per cent and even more remarkably mid and small-caps have outperformed quite significantly. Unlike the last rally in 2022, the ongoing rally seems to be led by a wide variety of sectors and not just the banks. Auto, consumer and real estate have all delivered strong double-digit returns. This shows that markets have now started looking ahead and have already started factoring in the strong earnings growth momentum expected in these sectors in the coming months. This is a classic sign of the return of the bull market. The most important factor determining the trajectory of inflation, going forward, will be the monsoon. If the monsoon is normal, food inflation will remain under control and this will give room to RBI to go for a rate cut. Therefore, the progress of the monsoon should be keenly watched. Though another round of profit booking in upcoming sessions is not ruled out, the bias still remains in favour of bulls and old timers advise investors and traders to use these dips to create fresh longs.

F&O/ SECTOR WATCH

Mirroring the consolidation in cash segment, the derivatives segment witnessed brisk action in selective stock futures. As per the weekly Options data, the 18,700 strike has the maximum Call Open Interest, followed by 18,800 and 18,600 strikes. On the Put side, the maximum OI is at 18,700 strike, followed by 18,600 and 18,300 strikes. Expect that market may witness sector rotation in upcoming sessions, as stock specific action likely to remain on radar. Auto stocks were in focus after reporting better-than expected sales numbers for May.