Market extends losses with nearly 2% fall but these smallcaps gain 10-52% during the week

For the second week running, the Indian equity market lost nearly 2 percent amid high volatility, with the Sensex down 1,141.78 points, or 1.95 percent, at 57,197.15 and the Nifty closing 303.65 points, or 1.73 percent, lower at 17,172 in the week ended April 22.

The US Federal Reserve’s hawkish comments on the rate hike in May, rising bond yields, mixed quarterly numbers and a worsening Russia-Ukraine war saw the market close in the red.

“Markets were weak during the week. Equity markets focused on (1) ongoing 4QFY22 earnings prints and (2) rising global and domestic bond yields. Markets continued to price in the increasing probability of aggressive rate hikes by the US Fed,” said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.

Sectorally, the Nifty information technology lost 5.6 percent and the Nifty media index 4 percent. The Nifty PSU bank and Nifty bank indices lost 4 percent each. The Nifty auto index, however, added 3 percent, Nifty energy and oil & gas rose 2.4 percent each.

The BSE midcap index shed 1.1 percent, smallcap index 0.9 percent and largecap index saw the biggest drop at 1.7 percent.

On the economic front, the International Monetary Fund (IMF) downgraded the global growth outlook. It now expects global GDP growth at 3.6 percent against 4.4 percent in the calendar year 2022 (CY22), Chouhan said.

The IMF has also cut India’s GDP forecast to 8.2 percent from 9 percent for CY22. This, however, is far better than its estimates for other major economies like the US, China, and Japan.

Federal Reserve chairman Jerome Powell affirmed the central bank’s determination to bring down inflation and said aggressive rate hikes were possible as soon as May.

The Fed is likely to depart from its usual 25 basis point hike and move quickly to tame inflation, which is rising at its fastest pace in more than 40 years, Chouhan said.

“Along with the rate hikes, the Fed is expected soon to start reducing the amount of bonds it is holding. The central bank’s balance sheet now stands at close to $9 trillion, primarily consisting of Treasury’s and mortgage-backed securities,” he said.

The final round of voting in France that pits President Emmanuel Macron against anti-immigrant party leader Marine Le Pen on April 24 would be closely watched.

“In China, foreign businesses are struggling to bring workers back to factories after weeks of lockdowns in Shanghai, as the country battles its worst Covid outbreak since the pandemic began,” he added.

During the week, foreign institutional investors (FIIs) sold equities worth Rs 18,443.81 crore, while domestic institutional investors (DIIs) bought shares worth Rs 14,394.37 crore.

So far, FIIs have sold equities worth Rs 29,206.19 crore in April, while DIIs bought equities worth Rs 20,166.48 crore.

In all this gloom, around 50 smallcap stocks rose between 10 and 52 percent. These include Sunflag Iron and Steel Company, Navkar Corporation, Chennai Petroleum Corporation, Mangalore Refinery and Petrochemicals, Texmaco Rail and Engineering, Bajaj Hindusthan Sugar, Cupid, Borosil Renewables, DCM Shriram Industries, Apcotex Industries and Minda Corporation.

On the other hand, Birla Tyres, INEOS Styrolution India, Aurum Proptech, Asian Granito India, Venus Remedies, Indiabulls Real Estate, Yaari Digital Integrated Services, Solara Active Pharma Sciences, PTC Industries, Jaiprakash Associates, Alok Industries, Intellect Design Arena, Rallis India, Dynemic Products, Renaissance Global, Saregama India, Steel Exchange India and Kabra Extrusion Technik lost 10-24 percent.

In the past few days, the Indian equity market has been gyrating after a healthy pullback since the March lows. While the headline indices seem to be in a consolidation mode, the larger activity seems to have shifted to the broader markets, with a large number of small caps and midcaps seeing greater market participation, especially in select sectors such as sugar, fertilisers, textiles and paper, said Milind Muchhala, Executive Director, Julius Baer.

The markets seem to be slightly cautiously positioned, as the Q4FY22 earnings season began on a mixed note, with some disappointments from a couple of large sectoral majors, he said.

Investors may prefer to wait out for more results to be announced and hear out commentaries to gauge if concerns of earnings cuts are creeping in.

“Also, the impending concerns of elevated commodity prices due to geopolitical situation and supply chain challenges, and with increasing expectations of a harsher hike by the US Fed, the market may continue to witness higher volatility in the near term,” Muchhala said.

A prolonged Ukraine war and elevated prices would gradually start weighing on demand, profitability and growth estimates, he said.

As the government gets ready to launch the mega IPO of LIC, it may put some near-term pressure on the secondary markets due to the large supply of fresh paper.

“We have been slightly cautious on the markets since the past few weeks and suggest creating some liquidity in the recent pullback, as the uncertainty and volatility are likely to continue for some more time with too many moving parts, providing intermittent opportunities,” Muchhala said.

Tata Power Company, Glenmark Pharma, Shriram Transport Finance Corporation, ICICI Securities, Max Financial Services, RBL Bank and Mphasis were among the big midcap loser.

Adani Power, NHPC, L&T Finance Holdings, Biocon, JSW Energy and Colgate Palmolive (India) led the gainers.

The short-term texture of the market is non-directional. For the bulls now, a fresh pullback rally is possible only after breakout of 17,280, above which the index can move to 17,400-17,550.

As long as the Nifty trades below the 200-day simple moving average, which is 17200, the correction will likely continue. Below it, the Nifty can slip to 17,000-16,800.

The way banking space performed during the week certainly does not bode well for the bulls. This week’s movement indicates a clueless market and so are we.

We will be hopeful till the time the 17,000–16,800 level is defended but the overall positioning is not convincing. So, the first couple of sessions in the upcoming week remain crucial and one must keep a close tab on how global markets behave.

As far as levels are concerned, 17,300–17,450 are to be treated as immediate hurdles. Support remains at 17,000–16,800.

Traders are advised not to trade aggressively till the trend becomes clear and also, unlike the previous weeks, we are not left with any convincing idea in individual stock as well. So, one needs to be selective when it comes to stock-centric approach and should follow strict stop losses for momentum bets.

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