Midcap, smallcap stocks could be in focus in RBI policy week

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Indian equity markets kick off FY23 on a strong note thanks to easing crude oil prices, some positive news flows on the Russia-Ukraine front, some buying by FIIs, continuous support by DIIs, and a pick up in industrial activities. Global markets are stable however there is still no clarity about the geopolitical situation while there are worries of both high inflation and slowdown as China is struggling with Covid.

This week, the RBI credit policy will be a critical factor in the direction of Indian markets because it seems that RBI is behind the curve as most of the central banks have already hiked interest rates while RBI is maintaining the status quo. It will be interesting to see how RBI will manage inflation and growth tradeoff where commentary will be crucial.

Historically, April remains one of the best months for the equity markets where Midcap and Smallcap stocks tend to outperform. It will be important to see how FIIs will behave in FY23 after relentless selling in the second half of FY22 however they have changed their gear in the last week with decent buying of Rs5600Cr.

If we look at the derivative data then the April series begins on a strong note as FIIs’ long exposure stands at 71% and the Put call ratio is sitting at a comfortable level of 1.31. Fear index or volatility index India Vix has also fallen below the 19 mark however it has support near 200-DMA around 17.5. If we look at the OI distribution chart then put writers are looking confident at the 17500 level while 18000 looks as immediate resistance.

Technically, the Nifty is continuing its strong bullish momentum following a breakout of 17350 level where 17800 is an immediate resistance while 18000-18100 is a critical resistance zone. On the downside, the 17500-17450 zone will act as an immediate support area while 17100 is critical support at any sharp pullback.

Finally, Banknifty manages to take out the critical resistance zone of 36700-37000 and it is showing strong momentum where 38000 looks like an immediate target however 37400 is an intermediate hurdle. On the downside, the 36700 level should act as a support now while 36000 is the next critical support level.

Mr. Santosh Meena, Head of Research, Swastika Investmart Ltd.

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