How do you see the Nifty and Sensex behaving on Monday 20th December after the sharp fall in the stock markets in the previous week?

On Friday, the Nifty closed with losses of 265 points and Sensex dropped 889 points. This was one of the worst closings since the start of November as the indices lost more than 3% in a single week. The markets are now nearly 8.5% below the peak levels touched in October this year. Markets are under pressure due to the hawkish tone of Fed and rising inflation.

In stock market specifics, on Friday, the advance decline ratio was deeply in the negative at 5:45. Obviously, with the rate hike fears, it was the banks and financials that came under a lot of pressure. Wipro emerged as the top gainer as it replaced Bajaj Auto on the Sensex and this move is expected to trigger inflows of $154 million into Wipro.

Foreign institutional investors net sold equities worth Rs.2,070 crore on 17-Dec while domestic funds bought stocks worth Rs.1,479 crore on Friday. FPIs remain risk-off over the year-end. Global cues were also bad. Dow tanked by 532 points while NASDAQ closed flat. European markets were weak and SGX Nifty is lower 39 bps in early trades on Monday

The pressure on the markets is likely to continue on Monday due to global pressure from Fed hawkishness, strong dollar and the unfolding Evergrande crisis. Traders have to be cautious on long positions as the risk-reward is likely to be unfavourable. It is best to stick to defensives and look at light trading positions till the new year begins.