Closing Bell: Sensex tanks 570 pts, Nifty below 19,750 pts in broad-based selloff

Nifty extended its decline as the benchmark index slipped towards 19,700. The Nifty index closed below the 20EMA, signaling a diminishing bullish sentiment. Weakness appears evident with a bearish crossover in the RSI. Selling on rallies remains the favored strategy as long as it stays below 20,000. On the downside, support is situated in the range of 19,700/19,630.

Stock Market Today |Kunal Shah, Senior Technical & Derivative analyst at LKP Securities

Bank Nifty experienced a significant correction during the day, with the Banking benchmark Index dropping below the 45,000 mark for the first time in several days. Furthermore, it fell below both the 20EMA and 50EMA on the daily timeframe. The RSI is signaling bearishness with a bearish crossover on the daily timeframe. In the short term, it could potentially move towards 44,000 on the lower end, while encountering resistance at 45,000 on the higher end.

Bearish sentiment across the global equities led to selling in the domestic market for the third straight session as investors fretted over the US Fed statement indicating one more rate hike later this year. Other negative catalysts like lingering overseas fund outflows, rising US Dollar index and treasury yields, and higher crude oil prices are making investors jittery. Technically, the Nifty has completed one leg of correction, and for the bulls now, 19700 would be the key level to watch out for. If the index succeeds to trade above the same, then we could expect one relief rally, and above 19700 the market could rally till 19825-19875. On the flip side, fresh selling is possible only after the dismissal of 19700 and below the same, the index could slip till 19650-19600.

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Domestic market declined following a hawkish stance by the Fed chair and prolonged high interest rate trajectory which is not positive for a slowing global economy. PSU banks and mid & smallcaps were the worst hit due to stretched valuations and concern over moderation in yields. Rising oil prices and erratic rainfall further led investors to stay cautious in the market.

The Nifty opened gap down for the second consecutive day and closed around the lows for the day. It closed down ~159 points. On the daily charts we can observe that the nifty is in the process of retracing the rise it has witnessed 19223 – 20222. It has now reached the zone of 19720 – 19680 where support in the form of the 20-day moving average and the 50percentFibonacci retracement level is placed. We expect Nifty to hold on to this support and provide a pullback. The daily momentum indicator today has provided a negative crossover which is a sell signal and is now in sync with the price action. In terms of levels, 19680 – 19604 is the crucial support zone while 19850 – 19900 shall act as an immediate hurdle zone.

Bank Nifty has witnessed a sharp correction today and, in the process, has breached the 20 and 40-day moving averages which is a sign of weakness. The daily momentum indicator has a negative crossover which is a sell signal. thus, both price and momentum indicator suggest a further decline. On the downside we expect it to target levels of 44500 – 44360 which coincides with the 20-week moving average and the 78.6 percentfibonacci retracement level.

“Although the Fed decided to maintain a status quo on the policy rate, the posturing sounded a little hawkish, with the majority of the Fed members endorsing another rate hike later this year. However, we deem 5.5 percentto be the terminal rate and do not see any rate hikes from here on. Core PCE inflation projections are downwardly revised for 2023 when compared with previous estimates, which indicates a series of rate hikes are working. We see the Fed rate unchanged at 5.5percentfor this calendar year, while fancy a chance of one rate cut in Q1 2024 as economic growth is likely to see deceleration, manifesting the lagged impact of cumulative 500bps rate hikes.”

Rupee ends at 83.09/$ against Wednesday’s close of 83.07/$

Benchmark indices ended lower for the third straight session, with the Nifty breaking below 19,750.The Sensex was down 570.60 points or 0.85 percent at 66,230.24, and the Nifty was down 159.10 points or 0.80 percent at 19,742.30. Declines outnumbered gains as about 1,288 shares rose, 2,254 fell and 127 were unchanged.

The sell-off was broad-based following the hawkish tone of the US Federal Reserve, hinting towards holding high-interest rates for a longer duration. All sectoral indices ended lower, down upto 3 percent, with banks- public and private, auto and pharma being the worst hit.

Auto stocks saw profit booking ahead of monthly sales data while banks slipped on concerns related to margins with ICICI Bank being the top loser. PSU banks saw a fall with strong volumes, with SBI slipping below the Rs 300-mark.

"The outcome from the latest US Fed meeting was in line with market expectations with the policymakers announcing a pause but not an end to the rate hike cycle.

The messaging from the Fed chair Powell was the trigger for equities markets to turn red. He continued to maintain a hawkish stance towards inflation and warned against easing off from the current stance too early.

The dot plot released highlighted the consensus view among policymakers of another rate hike this calendar year before a longer than expected pause and slower pace in cutting rates. This also indicates the belief in the strength of the US economy with ability to maintain tighter policy stance for longer."

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