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Market Headstart: Nifty likely to consolidate around 11,655; use rallies to sell

Trends on SGX Nifty indicate a negative opening for the index in India, with a 306 points, or 2.56 percent, loss. Nifty futures were trading around 11,680-level on the Singaporean Exchange

February 03, 2020 / 09:13 AM IST

Indian market is likely to consolidate after a sharp 2 percent cut after Budget on February 1. The Nifty50 is likely to consolidate around 11,655 which is also the 200-Days Moving Average (DMA) amid muted trend seen in other Asian markets.

After a steep fall in the US markets on Friday, Asian markets were trading mostly in the red on fears about the hit to the world growth from the rapidly spreading coronavirus. China resumed trading following the Lunar New Year break.

Trends on SGX Nifty indicate a negative opening for the index in India, with a 306 points, or 2.56 percent, loss. Nifty futures were trading around 11,680-level on the Singaporean Exchange.

Finance Minister Nirmala Sitharaman’s second Budget failed to lift market sentiment and investors will be better off avoiding bottom fishing at this point in time as the index could still fall to 11,500-11,333 before bouncing back.

Foreign investors who were not able to participate on Saturday will react on Monday to the Union Budget 2020 which in all likelihood will be on the downside.

Both Sensex & Nifty posted their biggest single-day fall in nearly 5 years. The Nifty bank posts the 2nd biggest one-day fall ever. Nifty Midcap Index slipped nearly 500 points, biggest 1-day fall in 16 months.

The S&P BSE Sensex was down nearly 1,000 points while Nifty50 plunged over 300 points on the Budget Day. Investor wealth as per averages market capitalisation of the BSE listed companies was down by Rs 3.5 lakh cr on February 1.

Amid expectations of a possible tweak in the long term capital gains tax or LTCG as well as Security Transaction Tax (STT) was not touched by the Finance Minister in the Union Budget 2020 which played a spoiler for D-Street as well.

The Budget belied the hopeful expectations that were built-up, skipping anything meaningful for the economy or markets to cheer, suggest experts.

Post the budget announcement, Goldman Sachs is of the view for the RBI is likely to keep its policy rates on hold in its announcement on February 6th.

Foreign investors have pumped in more than Rs 12,000 crore in stock markets in January, remaining net buyers of Indian equities for the fifth consecutive month helped by easing concerns pertaining to geopolitical tension between the US and Iran coupled with US-China trade war.

On the institutional front, FPIs were net sellers in Indian markets for Rs 1199 cr while the DIIs were net buyers to the tune of Rs 36 cr, provisional data showed.

Big News:

As many as 73 stocks on the BSE are scheduled to report their results for the quarter ended December that include names like Affle India, Bayer Cropscience, Godrej Properties, HUDCO, JBM Auto, Dr Lal Pathlabs, SRF, Shriram Transport Finance, Tata Chemicals, Ujjivan Financial Services, and Welspun Corp etc. among others.

Technical View:

Nifty formed a bearish candle on the daily charts

It also tested its 200-day exponential moving average (11663) with an intraday low of 11633 levels.

As the index is hovering around its 200-Day moving average some consolidation can’t be ruled out in in the next session

As the trend appears to be decisively turned in favour of bears, rallies can be used to create fresh short positions, suggest experts

In case the index slips below 11633 levels then the next logical target can be placed around 11342 levels

For time being traders are advised to remain neutral on the long side whereas in next session shorting can be considered if Nifty trades below 11633 levels for more than 30 minutes for a target of 11400 levels with a stop above the intra day’s high.

Three levels: 11342, 11633, 11700

Stocks in the news:

Auto major Mahindra and Mahindra (M&M) on Saturday reported a 6% decline in total sales at 52,546 units in January. The company had sold 55,722 units in the same month last year, M&M said in a statement.

ONGC, IOC and other oil PSUs will invest over Rs 98,521 crore in the coming fiscal starting April 1 in exploring for oil and gas, refineries, petrochemicals and laying pipelines to meet needs of the world's fastest-growing energy consuming nation.

The government will come out with the expression of Interest (EoI) inviting bidders for the privatisation of BPCL within a few days, a senior official said on February 2.

Brokerage View:
JPMorgan On ITC
Downgrade To Neutral From Overweight, Target Cut To `235/Sh
Tax Hike Would Impact Volume Growth & Weigh On Stock Multiples
Strong Economic Franchise Makes It Attractive At 5-7% Potential Downside
With NCCD Hike, Tax Incidence Is 10% Higher Vs Pre-Budget Levels
Specific Tax (Ex-Ad Valorem) Per Stick Is Up 13%
Expect Higher Price Increase To Drive Positive EBIT Growth
Forecast 12% Price Hike Over FY21 To Deliver Cigarette EBIT Growth Of 5%
Lower FY21/22E EPS Estimates By 3%
EBIT Growth Forecast Lowered To 5% in FY21

BUDGET 2020: MS On Realty
New Direct Tax Regime & Tax Extensions For Affordable Hsg Should Help Demand
DDT Removal Should Result In 2-5% Higher Cash With Companies
REIT Yield Should Be Adversely Affected For Domestic Retail/HNI Investors
Estimate 2-5% Of Profits As Incremental Cash Surplus For DLF, Sobha, Oberoi, Prestige

Kshitij Anand
Kshitij Anand is the Editor Markets at Moneycontrol.