How do you stock markets on 27th April? Will the rally of Tuesday continue on Wednesday also?

On Tuesday, both the indices bounced back sharply; the Nifty by 247 points and the Sensex by 777 points. During the day, the smartest move came from auto stocks even as the market as a whole saw a lot of short covering. There is also an excitement in the primary market with the LIC IPO being announced, although size of the IPO has been cut to Rs.21,000 crore.

In terms of the market structure, the breadth of Nifty as measured by the advance / decline ratio was strongly positive at 42:8. Even the VIX tapered to 19.19 levels and while lower VIX is good, it needs to taper below 15 to be really a buy on dips signal. Financials did better in Q4 than expected even as there was strong element of short covering in markets.

FPIs remained net sellers in equities of Rs.1,174 crore while domestic funds and LIC bought Rs.1,644 crore on Tuesday. FPIs have sold Rs.24,300 crore in the last two-and-half weeks of April. There was a massive sell-off in the US markets on Tuesday ahead of key US results season. Europe was lower while the SGX Nifty is lower 129 basis points in early trades.

The two big news to watch out for in the coming week are the Fed meet outcome and the LIC IPO opening. Both are expected to happen on 04th May. Wednesday is likely to be another weak day for markets with the deeply negative US cues. It now looks almost certain that the US will top up the China slowdown worries with its aggressive monetary tightening.