Oversold markets may stage near-term rebound, say analysts

Indian equities experienced a decline on Friday, mirroring the downturn in other Asian markets, as rising oil prices and higher US bond yields kept investors on edge. Despite a partial recovery, both the Nifty and Sensex ended the week lower for the fifth consecutive week. The Nifty dropped 0.3% to 23,398.1, while the Sensex fell 0.2% to 74,781.76.

Traders took advantage of the respite by reducing positions, with some short covering ahead of the three-day holiday weekend. Key events during this period include the release of CPI numbers, potential positive geopolitical developments, and indications from the BRICS summit. Analysts suggest that the index is near a key support zone of 23,000-23,200, and a near-term pullback towards 23,700-23,800 is possible, given the oversold readings.

The Nifty's Volatility Index rose by 4% to 12.27 levels, indicating market fear. Broader market indices, such as Nifty Midcap 150 and Nifty Small-cap 250, also declined, with the former down by 0.3% and the latter by 0.5%. Analysts believe that a correction in crude prices and easing bond yields could signal a broader trend reversal, but a sustained move is unlikely as elevated oil prices are a global concern.

Despite the overall weakness, stock-specific momentum, particularly in small-cap space, remains encouraging. Overseas, Asian markets saw declines, while the pan-European Stoxx 600 index remained relatively stable. Foreign portfolio investors netted out shares worth ₹931 crore, while domestic institutions were net buyers at ₹1,968 crore.