Market Outlook: 5 Reasons Why the March F&O Series Could Keep Investors Busy

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The February series was one of the most volatile series since April 2021 expired, NSE data shows, with an average daily fluctuation for the Nifty index is up to 1.45% (average difference between daily high and low). Last year the average daily swing was 1.55% in the April series and 1.77% in the March series before that. The average trailing-12-month F&O maturity average was 1.19%, with the July 2021 series being the least volatile with a daily average variation of 0.77%. The Nifty is down about 3.5% in the February F&O series. The March series to also be choppy given the numerous headwinds markets are facing. At a fundamental level, foreign portfolio investors (FPIs) remain extremely uncomfortable with India's valuation premium, analysts said, and have sold nearly $11 billion worth of shares over the past six months. The Indian stock market could remain unsettled in the coming weeks and offer good entry points in the event of major corrections. We recommend investors to focus on domestic cyclical companies such as banks, cement and staffing companies barring reopening of trades including multiplexes. The biggest risk may come from an oil shock for Indian equities as the reopening of the global economy could boost demand.

Here are the top five events that could swing markets either way in March:

Russia-Ukraine crisis: The ongoing Russia-Ukraine crisis will keep the markets in suspense. Markets would closely monitor the resulting sanctions affecting deals with Russia and any spillover effects to neighboring European countries. On the positive side, a peace deal could send global equities soaring. Stock markets always overreact to initial events and eventually adjust to the fundamental consequences of events. Global equities, including Indian markets, could fall another 2% to 3% from current levels and would thereafter begin to adjust for the perceived potential fallout. After a few weeks, the war would either stop or continue longer as a proxy war. Global equities would adjust to the eventual fallout within two to three weeks.

Fed Meeting Outcome:  The Fed is expected to meet on March 15-16 to review interest rates. With inflation at a four-decade high, the Fed appears poised to hike rates at the policy meeting. According to experts, markets seem to have priced in a 25 basis point (bp) rate hike so far, any mismatch in expectations could lead to a knee-jerk reaction from the markets.

Crude Oil Prices: Brent Crude crossed the $100 mark in trading on Thursday after Russia ordered troops to invade eastern Ukraine. As the global economy battles inflation, rising oil prices can further fuel inflation, in turn disrupting financial math. If prices remain high for a long time, it will also impact corporate earnings growth in some sectors in the coming quarters.

Assembly Polls: Results of state elections in five states including Uttar Pradesh, Punjab to be announced on March 10. The BJP is the ruling government in Uttar Pradesh, Uttarakhand and Goa. While there may not be a direct correlation between the elections and the markets, any positive verdict for the BJP could boost sentiment in non-ruling states like Punjab and Manipur, while any negative outcome in the currently governed states could dampen sentiment.

Portfolio rebalancing: at the end of the financial year: FIIs have been net sellers in recent months on concerns that the interest rate cycle in the US could change. Given the magnitude of the selling, a portfolio rebalancing at the end of the year could impact select index heavyweights and therefore the index. On the other hand, while DIIs and retail investors have mostly been net buyers, they may want to book profits towards the end of the fiscal year.