An influx of foreign portfolio investments has seen Indian benchmark indices record their best week since February last year. A combination of factors saw foreign portfolio investors (FPIs) engage in continuous selling for over nine months as this group of investors pulled a record amount of funds from Indian capital markets. This year alone, data from the National Securities Depository Limited shows that FPIs sold over ₹ 226,000 crores.
But this trend would change at the start of this month as FPIs became net buyers. Last Thursday saw over $1 billion pumped into Indian stocks by the set of investors, which marked the highest figure since November last year. The following day the domestic equity market would close at its highest level, which marked its best week since February 2021.
The rally, which lasted the whole of last week, left Indian stock investors richer by over ₹9 trillion. Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities, believes due to factors like rising inflation and tightening monetary policy, the FPI inflows would remain volatile moving forward. And this volatility isn't bad, especially for traders who can exploit various opportunities created in different markets to their advantage. This means they can long or short the market based on their convictions after technical and fundamental analysis. One tool that can prove helpful in such markets is the MACD indicator in Hindi, which tells traders when to enter and exit their positions.
How MACD Helps Indian Stock Market Traders
MACD is a trend-following momentum indicator. It is based on the difference between two moving averages of prices, and it helps to identify changes in trends, overbought and oversold conditions, divergences, etc. This can be used by traders/investors and forex traders looking for signals or indicators that will allow them to make better decisions while trading their favourite currency pairs.
The most important thing about this indicator is that it will show you whether there's a bullish or bearish trend running on your chosen pair(s). If you see that MACD is moving above its zero line (i.e., upwards), then chances are high that an upward trend may continue until it reaches some specific level which may trigger another wave down again; however, if you see that MACD remains below zero line then you can expect a further decline in price until reaching another lower level where another wave up could take place again – but only after reaching some specific threshold first.
Combined with price action, MACD can serve as a decent tool to identify entry and exit points, especially when day trading or scalping. If the MACD line crosses above the signal line, this can indicate an imminent price uptrend, and if the signal line crosses above the MACD line, this can signify an imminent price reversal or downtrend.
What Does The Future Hold For The Indian Stock Market?
Following last week's rally, many analysts recommend investors continue with a positive yet cautious approach. This means focusing more on identifying quality stocks amid the rotational buying.
One analyst of this opinion is Amol Athawale, Deputy Vice President for technical research at Kotak Securities. Commenting on last week's performance, he notes that falling crude oil prices and a rebound in inflows into the domestic market had helped the Sensex close above the psychological level of 56000. Adding that the fear of aggressive rate hikes by the RBI and US Fed is slowing down, which has allowed investors to collect stocks of companies with good fundamentals.
Rupak De, a Senior Technical Analyst at LKP securities, notes that “Nifty has been moving higher while remaining around the upper band of the rising channel on the daily timeframe. The trend remains positive; however, the proximity to the resistance level attracts selling pressure in the market. Over the short term, the Nifty may witness a consolidation. On the lower end, support is visible at 16500; while resistance is likely to be there at 16750-16800.”
Considering the rally that lasted over the past week, it's normal to expect a slight pullback this week. That said, if FPIs feel there is more value to be found in a market that has struggled for the best part of the past year, expect capital inflows to continue, and this should see the market rally to higher levels inspiring more confidence in the market.