A pro-growth budget from Finance Minister Nirmala Sitharaman and US Federal Reserve’s indications that a rate hike now is in the past, helped February kickstart on a relatively high note for Indian equities, with benchmark Nifty 50 scaling a lifetime high.

While the spirits of bulls remain high, there are a few key events lined up this month which will determine the sustenance of the momentum.

This week, the Reserve Bank of India’s monetary policy meeting is lined up, and all eyes will be on the comments by Governor Shaktikanta Das and his fellow members in the central bank about the budget, the government’s market borrowing plan for FY25, the fiscal deficit target of 5.1% and the capital expenditure roadmap.

Secondly, the corporate earnings season is on, and trends so far indicate weak consumption, particularly in the rural market, and a reversal of price pressures for a few sectors/companies.

“This has been one of the most disappointing quarters earnings-wise in the last one or two years, and these numbers are not going to improve in the March quarter,” says Rahul Chadha, Founder & CIO, Shikhara Investment Management.

“Near term, our view is things are going to be soft and markets may be range-bound or slightly down,” he said. Thirdly, after strong buying in November and December of 2023, foreign institutional investors (FIIs) turned net sellers in January, weighed down by a firm dollar and a rise in global bond yields. While in the first two trading days of February, they were net buyers, it’s too early to conclude that they have made a comeback.

Lastly, geopolitical risks have been and continue to be one of the major risks to the market rally, according to experts.

These above-mentioned factors suggest a tough fight between the bulls and bears on Dalal Street this month.

Historical Trends

A glance into how markets have historically performed in February showed that bears had an edge over bulls in a majority of instances.

In the last 10 years, the Nifty 50 has closed in the red on six occasions in February with an average negative return of 1%.

Whether history will repeat or will the index break the historical trend is something only time will tell.

“The Nifty will continue to remain choppy, and the inability to provide follow-up actions on either side are typical characteristics of a consolidation move,” says Amit Trivedi of YES Securities.

Flow Show

FPIs bought domestic equities worth Rs 2,053 crore in the two sessions in February after selling stocks worth Rs 25,744 crore in January.

While bond yields have fallen sharply in India and globally, their trajectory will continue to determine the movement of flows into equities.

“FPI inflows into the equity market will depend on the trends in the US bond yields and the equity market trends globally as well as in India,” said VK Vijayakumar of Geojit Financial Services.

“Since the US bond yields have again corrected sharply, FPIs are unlikely to sell in large volumes in February. They may even turn buyers, but inflows into the debt market are likely to continue,” he added.

Eventhough history shows that the Nifty50 has by and large given negative returns in February, data from FIIs and domestic institutional investors shows that the overall inflows have been relatively positive in the month.

In the last 10 years, FIIs were net sellers of equities in February on four instances, whereas DIIs were net sellers only on two occasions.

What should investors do?

While Nifty 50 has retested its record high after consolidating for two weeks, it’s too early to assume that the market is set for the next leg of an upmove, says Ajit Mishra, SVP – Technical research, Religare Broking.

The index needs to sustain above 22150 to march towards 22500 points, Mishra said.

But so long as the 50-stock index holds above 21200 levels, it will be a “buy on dips” market, say analysts.

Mishra also pointed out that consistency in the participation from the banking majors is also critical for a steady trend, else the range-bound trend would continue.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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