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Short covering move fizzle-out due to unabated FPI selling pressure

ICICIdirect Research 07 Feb 2025 DISCLAIMER

Equity benchmark extended gains over second consecutive week tracking firm global cues amid temporary pause on Tariff by Trump Government and RBI policy outcome. Nifty ended flat to settle at 23450

Broader markets observed a round of recovery amid short covering ahead of budget and derivatives expiry last week. While Nifty has recovered nearly 4% from lows, midcap and small cap indices have even performed better. While stock specific short covering was experienced significantly, index short positions haven’t seen similar kind of closure. In Index futures, short covering was limited for couple of sessions and fresh shorts were observed recently.

In case of the current move is not sustaining above 23300, we might be heading towards January lows and Nifty may attempt to form a base. However, on a immediate basis, we expect 23300 levels to act as immediate support and next round of move towards 24200 is likely due to short covering.

However, FPIs selling pressure remained unabated and apart from couple of sessions during the week, they have remained largely net sellers in the cash segment.

While stocks from the Auto, NBFC and consumption witnessed recovery due to short covering but they failed to sustain their levels despite tax rebate in union budget which might be due to continued selling pressure from FIIs.

Key Monitorables:  Bouts of volatility cannot be ruled out ahead of state election outcome and inflation print on domestic as well as US front. Meanwhile, Prime Minister Modi's visit to US would be key monitorable   

Global Macros: Amidst Tariff related anxiety, US Dollar index made a failed attempt to surpass 110 mark and currently trading below 108 mark. Meanwhile, Brent crude declined extended losses over third week in a row and hovering around 75 mark. Declining US dollar and Brent crude augurs well for risk on sentiment in emerging markets 

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