D-Street enagages in Budget safety, but could go higher in near term

India's equity indices fell nearly half a per cent Friday and ended the month 3.1% lower, logging its worst January performance since 2016. Analysts said that traders unwound bets ahead of the Budget on February 1, but the index is expected to inch higher toward 25,500-26,200 in the near term.

The NSE Nifty finished at 25,320.65, closing 98.25 or 0.4% lower. The BSE Sensex ended at 82,269.78, down 0.4% or 296.59 points. Both indices rose around 1% during the truncated trading week.

"The fall on Friday was largely due to the volatility ahead of the Budget on Sunday, but nothing extraordinary is expected in the budget since there has already been a central bank infusion of liquidity and GST rationalisation," said Bhavik Joshi, business head at INVasset PMS.

Joshi said the India-US trade deal could be a bigger event for the markets. "Foreign inflows are required for the markets to regain momentum," he said.

Foreign portfolio investors (FPIs) bought shares worth a net ₹2,251.4 crore on Friday. Their domestic counterparts sold shares worth ₹601 crore. In January, global investors sold stocks worth ₹31,900.8 crore.

ETMarkets.com

Metals Lose Lustre

The Nifty Metal index dropped 5.2% as spot prices of precious metals tumbled. Among precious metals, silver declined 10.6% on Friday, while gold fell 4.6%. Copper slid nearly 2% lower. Nifty IT index declined 1% and Bank Nifty slid 0.6% lower. However, Nifty FMCG, Consumer Durables, and Media indices moved over 1% higher.

Joshi said that the fall in precious metal prices globally could offer investors a buying opportunity. "Pullbacks are typically sharper after parabolic moves as seen in gold, silver and copper, but the physical demand remains intact and could offer further gains," he said.

The Volatility Index (VIX) surged over 40% in January and rose almost 2% to 13.6 on Friday, indicating elevated risk perceived by traders ahead of the budget.

"The markets regained some ground this week due to the deal with the European Union, an event well supported by a technical bounce back rally from the support zone of a 1-year exponential moving average of 24,900," said Vipin Kumar, AVP Equity Research & PMS (Derivatives & Technical Analyst) at Globe Capital Market.

Kumar said that traders usually unwind positions ahead of high volatility events like the budget, which could have prompted the declines on Friday.

"If Nifty closes decisively above 25,500 levels, then it can extend gains up to 25,900 levels, and the probability of this is higher," said Kumar. "The 24,900 levels will remain the key support level on the lower side."

On Friday, the Nifty Midcap 150 index advanced marginally while the Smallcap 250 index climbed 0.9%. Of of the 4,367 shares traded on the BSE, 2,380 advanced, while 1,831 declined.

In the past week, the mid-cap and small-cap indices gained 2.3% and 2.9%, respectively. The broader market witnessed declines recently, as the midcap index fell 3% in the past three months while the small-cap index tumbled 9.5%.

"Nifty is expected to move toward the 26,200 level as the index, along with the Bank Nifty, is closer to its all-time highs," said Joshi. "However, the smallcaps remain laggards and for a broader market rally, this segment needs to recover."