What is your view on the Nifty and the Sensex for 25th May? Do you see the prospects of the Nifty bouncing back on Wednesday?

Tuesday was another volatile day when the stock markets eventually ended with losses. Nifty was lower by 89.55 points at close at 16,125 but the strength in the rate sensitive auto and banking pack was the highlight of the day. While higher fiscal deficit will remain an overhang, government is going all out to fight inflation and that could be a game changer.

Let me now turn to the market structure. The breadth of the Nifty as measured by the advance decline (A/D) ratio was unfavourable at 18:32. However, autos and banks were in the positive on aggressive inflation control measures, both monetary and fiscal. Fear is high as VIX surged to above the 25.6 levels. As I said, watch out for the inflation battle.

Foreign investors remained net sellers in equities worth Rs.2,393 crore and that trend has not changed in last few months. Neither has the trend of domestic funds and LIC changed which bought stocks worth Rs.1,948 crore on Tuesday. FPI selling has been above $18 billion in 2022 and rupee is weaker. Now it is for the FPIs to react to the inflation control measures.

Let us look quickly at the global markets. Dow closed 48 points higher but NASDAQ fell 271 points after bleak forecast from Snap. That pulled technology stocks lower. European markets were down over 1.5% on Tuesday. SGX Nifty in early trades on Wednesday is quoting around 35 bps lower on global worries. The opening could be weak.

Let me finally address your query on the Nifty bouncing back. Frankly, for now it looks tough. Global cues are weak so short term pressure is likely. However, the government is taking on inflation hard and that could be the medium term theme. The tapering in inflation could be 100-150 bps and that makes rate sensitives like auto and banks attractive. A final call can only be taken post greater clarity on the FOMC minutes on Wednesday.