As seen from the chart, the Nifty has negative correlation with the dollar index. Indian equity market banks heavily on foreign fund inflows and strength in US dollar index would accentuate selling in equities by FIIs.
The Indian rupee closed at 7-week low in trade on Thursday. FIIs have sold shares worth close to Rs 3000 crore in last three days. It would be premature to say that a deeper correction is underway but one should keep a close look at dollar index before starting bottom-fishing in the market.
-Riken Mehta (Follow me on Twitter @mehtariken)