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The week gone by had 'Holi' celebrations but on different days in Maharashtra and the rest of the country. While Mumbai, Maharashtra and the stock markets celebrated on Tuesday, the rest of India did so on Wednesday. Markets gained at the open of the week and then lost, with two days of gains and two days of losses. The falls were much bigger, hence the week ended with losses. BSESENSEX lost 673.84 points or 1.13 per cent to close at 59,135.13 points while NIFTY lost 181.45 points or 1.03 per cent to close at 17,412.90 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.92 per cent, 0.69 per cent and 0.61 per cent respectively. BSEMIDCAP and BSESMALLCAP were against the trend and gained 0.09 per cent and 0.38 per cent respectively.

The Indian Rupee lost 8 paisa or 0.10 per cent to close at Rs 82.04 to the US Dollar. Dow Jones after having gained for four consecutive sessions, lost for four consecutive sessions. The first day of the week saw gains and then it lost on the remaining four days. Dow Jones was down 1,481.33 points or 4.44 per cent to close at 31,909.64 points.

There were two events that hit trading sentiment in the US this week. The first was the statement from Jerome Powell about interest rates. FED Chairman Jerome Powell on Tuesday cautioned that interest rates are likely to head higher than central bank policymakers had expected. The FED interest band is currently 4.50 per cent-4.75 per cent and it is expected that there would be one rate hike of 50 basis points and at least two more of 25 basis points before a pause. With this comment there may be two or three rate hikes of 50 basis points taking the rate to around 5.75 per cent-6 per cent.

The second event was the Federal Deposit Insurance Corporation putting under receivership, Silicon Valley Bank. The bank funds startups and sold a 21 billion bond portfolio to repay depositors. The portfolio consisted of mostly US Treasuries and the average yield was 1.79 per cent, far below the current 10-year treasury yield of 3.9 per cent. This resulted in a loss of 1.8 billion dollars which the bank proposed to raise through fresh equity issues. The share price fell by 60 per cent and was hence called off. This as per media reports is the first of many US banks feeling the heat of rising interest rates.

A thought which comes to mind is that this is the fall-out with just one bank. If a couple more were to go belly up it could shake the entire system.

The financial year 2022-2023 is coming to an end and there are expectations that mutual funds may invest in shoring up their NAVs in the coming days. This used to be the practice in earlier years, but nowadays the system is that of a daily NAV and a weighted average NAV. It therefore does not make much sense in trying to shore up.

However, the Midcap and Smallcap segments did show remarkable poise and strength in the week gone by. Whenever markets have begun to fall sharply and attempt to make a medium term bottom, the selling happens across the board. There has so far not been a single occasion when such a large segment like the midcap and Smallcap segment has remained unaffected. Can this time be different and are we ready to rewrite the history books, only time will tell.

Markets are jittery and the mood is down in the dumps across geographies whether it be the US or India. It seems that the turnaround right away is virtually impossible. The best healer is time and we need to spend time building from a new base which has to be lower than present levels. While with markets drifting over the last three months since the 1st December 2022 new highs, we have moved down but not lost significantly.

Valuations have become lower than the previous rich earlier but not enough for warranting a buy. For a near short term bottom also, there has to be shakeout and a sharp fall of some kind. Could this be the period?

Coming to the markets in the week ahead, expect volatility and a nervous marketplace. While one eye would be on the US markets and what happens there, the other ear would be trying to sift the noise about the banking system and whether any more events like the Silicon Valley are happening. As mentioned earlier, the key focus in India would be on the Smallcap and midcap sector which could be under pressure hereon.

Key resistance for the markets would be at levels of 17,750-17850 on NIFTY and 60,250-60,550 on BSESENSEX. Incidentally even during the rally during the earlier half of the week, these levels were not breached. The higher resistance would remain in the region of 18,265 on NIFTY and 61,400 on BSESENSEX.

On the support side, immediate support is the budget day low made on 1st February of 58,816.64 points on BSESENSEX and 17,353.40 points on NIFTY. If these are broken then the next line of defence would be 17,000-17,050 on NIFTY and 57,900-58,050 on BSESENSEX. Gut feel says that this week we are likely to see the budget day low being broken on the downside. If that were to happen there could be some sort of a sharp sell-off.

The strategy for the week would be to sell on any rallies and buy only large caps on any major fall. Avoid dabbling in midcap and Smallcap on any falls or weakness. The pain point would be in this sector. Trade cautiously and avoid adventurism in the markets.