Closing Bell: Nifty below 19,450, Sensex falls 286 pts; mid, smallcaps underperform

Taking Stock: Sell-off continues on second day; Sensex down 286 pts, Nifty below 19,450

Biggest losers on the Nifty were Axis Bank, SBI, IndusInd Bank, NTPC and UltraTech Cement, while gainers included Adani Enterprises, Nestle India, HUL, Eicher Motors and HDFC Bank... Read More

Nifty extended losses for the second day on Oct 04 to end lower, though recovering from intraday low. At close, Nifty was down 0.47% or 92.7 points at 19436.1. Volumes on the NSE improved but was still below recent highs. Broad market indices fell more than the Nifty even as the advance decline ratio fell sharply to 0.42:1.

Asset classes across emerging markets took a dive on Wednesday with stocks and currencies hitting multi-month lows pressured by an ongoing rout in global bond markets (30-year yields touching 5% for the first time since 2007). US bond yields reach 16-year highs, challenging equity valuations and souring appetite for risk assets as investors bet interest rates will remain persistently high.

Nifty fell with a downgap on Oct 04, but formed a hammer like pattern raising hopes of a reversal of the present 11-day downtrend. If Nifty closes in the green on the subsequent session, a bullish reversal could get confirmed. Nifty could then face resistance in the 19529-19665 band while 19333 could offer support.

The Nifty opened gap down and witnessed volatile price action through the day. During the first half it fell while in the second half it witnessed an equally strong pullback and as a result it closed well above the intraday lows (19333). The zone of 19320 – 19360 is a crucial support as multiple parameters in the form of the daily lower Bollinger band and the ‘20 week’ moving average is placed. The hourly momentum indicator is on the verge of providing a positive crossover which is a buy signal indicating that the fall is likely to halt and the probability of a pullback increases. In terms of levels, 19330 – 19300 is the crucial support zone while 19520 – 19560 shall act as an immediate hurdle zone.

Bank Nifty opened gap down and witnessed volatile price action. The consolidation of the last four trading sessions broke on the downside which is a sign of weakness. The index has corrected around 5.3% in the last three weeks and is appearing oversold. We expect a relief rally over the next few trading sessions. On the downside, support is placed at 43800 – 43600 while resistance is placed at 44400 – 44500.

Bears remained in the driver's seat as Nifty50 began the day lower at 19,450, following the weak global equities. The Index kept compounding its losses in the first half of the trading session; however, the Bulls fought back in the 2nd half with a strong recovery. The Nifty50 declined by 92.65 points and settled at 19,436.10.

Index recovery was mainly led by the IT sector followed by FMCG. After a sharp run-up, PSU Banking segment witnessed a pressure of profit booking. Broader markets underperformed the Frontline Index as Mid and Smallcap indices corrected over 1%.

The Index has formed a Dragonfly DOJI candlestick pattern which indicates a potential reversal of the trend. The immediate support stands at 19,355 while the higher side is capped at 19,560.

The Nifty exhibited volatility throughout the day but managed to recover from the lowest point of the day before closing. The overall market trend remains bearish, with the Nifty trading below critical moving averages.

Looking ahead, the market may continue to follow a bearish trend as long as it remains below 19500, with initial support likely around 19330, a fall below the said level might take the Nifty towards 19250-19200.

Overseas investors are pulling out funds from Indian equity markets as the current rally in US dollar and bond yields is making emerging market assets less attractive. Despite our strong macroeconomic growth performance, India is not insulated from global problems, and hence any correction in global markets due to worries over further rate hikes would have a rub-off effect here.

However, the Nifty has formed a Dragonfly Doji candlestick formation which is indicating a strong possibility of a relief rally from the current levels.

For day traders, 19380 would be the key support level to watch out, above which the index could see the pullback rally till 19500-19550. On the flip side, below 19380 the selling pressure is likely to accelerate and could slip till 19330-19300.

The bears in the Bank Nifty maintained their control, causing the index to break below the support at 44,200. The next immediate support level is positioned at 43,800, and a breach below this level could trigger aggressive selling pressure, potentially leading to a further 2% correction in the index.

On the upside, the immediate resistance is in the range of 44,250 to 44,300. A breakout above this range may incite some short-covering moves in the index.

Strong US job data is reinforcing Fed's hawkish stance and multi-year high US bond yields is signalling an impending interest rate hike. Globally, investors are adopting risk-averse strategies due to inflation concerns and the strengthening US dollar. And in India, despite a robust economy, premium valuations of midcaps and recent rally is augmenting consolidation.

Interest-rate-sensitive sectors like real estate, banking, and metals are the most impacted category, while the FMCG sector is more optimistic in expectation of near-normal monsoon & festival demand. Auto is consolidating amid mixed growth numbers and in this weak period, large-cap are a trading safe to hold on.

Markets remained volatile for yet another session and lost nearly half a percent. After the gap-down start, Nifty further drifted lower in the first half however recovery in select heavyweights trimmed the losses as the day progressed. Meanwhile, most sectors continued with a negative tone wherein realty, pharma and financials were among the top losers. The broader indices too felt the heat and lost over a percent each.

We may see some respite in the index after the recent slide but the upside seems capped citing feeble global cues. On the other hand, the broader indices are now showing early signs of exhaustion, which may prompt fresh fall in the midcap and smallcap space. We thus recommend focusing more on trade management and maintaining positions on both sides.

As we had highlighted last week, the weakness in market has persisted but on account of local and global factors. Nifty decline 1.3% for the week but the bigger impact was seen in the IT space wherein the index declined almost 3% (driven by profit warnings by Accenture). The weakness in US wherein the theme of higher inflation for longer is getting traction along with record yields is further driving risk off across emerging markets. Job openings in US also increased which further supported the narrative that economy is proving to be resilient. We expect this earnings season to be of very high importance as commentary from management’s would be key especially with regard to demand and margin outlook as raw material prices increase driven by increase in crude price.

While there is no reason to panic with regard to the structure of the Indian markets there is some caution warranted in the near term. US 10-year treasury yields are closing 5% which will drive further outflows from the emerging markets.

Indian rupee ended flat at 83.23 per dollar against previous close of 83.20.

: Benchmark indices ended lower for the second consecutive session on October 4 with Nifty below 19,450.

At close, the Sensex was down 286.06 points or 0.44 percent at 65,226.04, and the Nifty was down 92.70 points or 0.47 percent at 19,436.10. About 1255 shares advanced, 2294 shares declined, and 122 shares unchanged.

Biggest losers on the Nifty were Axis Bank, SBI, IndusInd Bank, NTPC and UltraTech Cement, while gainers included Adani Enterprises, Nestle India, HUL, Eicher Motors and HDFC Bank.

Among sectors, except FMCG and Information Technology, all other indices ended lower with auto, capital goods, power, PSU bank, capital goods, healthcare, metal, realty down 1-3 percent.

Broader indices underperform the main indices with BSE midcap index falling 1.5 percent and smallcap index down 1 percent.