Closing Bell: Sensex falls 888 pts, Nifty below 19,800; IT stocks worst hit

Taking Stock: Market snaps six-day record run; Sensex plunges 888 pts, Nifty below 19,800

The biggest losers for the day on the Nifty were Infosys, Tech Mahindra, HCL Technologies, HUL and Reliance Industries, while gainers were L&T, ONGC, NTPC, SBI and BPCL... Read More

Nifty crashed today, ending its winning streak due to disappointing Q1 performances from INFY (-8.41%) and HUL (-3.82%). Overbought conditions and high greed contributed to the sell-off. Investors now await RIL Q1 results, expecting a consolidation around 19501 with resistance at the psychological 20000 mark. Caution is advised in this return of risk.

Overnight fall in tech-heavy Nasdaq triggered a wave of massive correction in local software stocks led by Infosys, which slashed the revenue growth guidance for the rest of the year due to sharp deterioration in discretionary spending by the clients. The record upsurge in the markets in such a quick time was already raising concerns of expensive valuations, and hence investors took this opportunity of weak US cues to prune their holdings, although India's fundamentals remain on strong footing.

Technically, on intraday charts, the Nifty has breached the crucial support of 19825 and post breakdown it is comfortably trading below the same, which is largely negative. In addition, a sharp intraday correction and reversal formation on daily charts is also indicating temporary weakness. Below 19825, the weak sentiment is likely to continue below the same and could slip till 19600-19550.

On the flip side, a fresh uptrend rally is possible only after the dismissal of 19825 and above the same, the index could retest the level of 19900-19950. Contra traders can take a long bet near 19550 with a strict stop loss of 30 points.

For Bank Nifty, 45800-45500 would be the key levels to watch out for and above the same, the index could move up till 46500-46900. On the flip side, below 45500 uptrend would be vulnerable.

Domestic equities took a pause just before the 20k zones. Nifty opened lower dragged by selling in IT heavyweights after Infosys lowered its FY24 growth guidance. Nifty closed with a loss of 234 points (-1.2%) at 19745 levels. Broader markets were mixed with the Nifty midcap 100 down -0.4% while the Nifty smallcap 100 was up +0.7%. Except for PSU Bank and Auto, all sectors ended in red. IT, Consumer Durables, and FMCG were major laggards.

All eyes will be on the US Fed and ECB policy meeting next week. Investors would also take cues from various macro data that would be released. With the result season picking up pace, we expect a lot of stock-specific action and provide direction to domestic equities in the coming week. Apart from Index heavyweight Reliance, Banking sector is also likely to be in focus as ICICI Bank and Kotak Bank would announce results over the weekend.

Markets witnessed profit taking on Friday and shed over a percent, tracking weak cues. After the initial gap-down opening, Nifty drifted gradually lower and finally settled at 19745 levels. The decline was widespread wherein the IT pack faced the maximum heat, followed by FMCG and energy majors. Meanwhile, the broader indices traded mixed, capping damage to the market breadth.

We expect Nifty to spend some time around the current levels, to digest the recent surge and it would be healthy. Meanwhile, participants should focus more on risk management for the existing trades and prefer sectors that are showing resilience for fresh positions. Among the key sectors, banking and financials still looks promising for further up move while the crack in the IT pack has delayed its reversal so plan accordingly.

The Bank Nifty index experienced a volatile trading session with both buying and selling pressure seen from market participants on both ends. This volatility indicates indecision in the market, and traders are closely monitoring the price movements. The option data suggests that the market may remain range-bound as there is significant option selling observed at the at-the-money (ATM) strikes.

Option sellers often anticipate that the market will remain within a specific range during a certain period. The lower end support for index is placed at 45900. If the index falls towards this level and holds, it may act as a support, preventing further downside. On the other hand, the upside resistance is visible at the 46350-46400 levels. If the index manages to surpass this resistance area, it could signal further upward movement.

The weak guidance from Infosys cast a shadow over the outlook of the Indian IT sector, causing a delay in Nifty's pursuit of the 20,000 mark. While the heavyweights surrendered to the bears, the small caps demonstrated resilience. Global markets presented a mixed picture, with the US market struggling due to weak earnings, while UK retail sales exceeded expectations with a 0.7% MoM growth.

The Indian rupee has outperformed Asian currencies due to dollar inflows. However, the greenback has extended a run of gains against major currencies ahead of next week’s big three central bank’s policy decision.

In the coming week, the forex market is expected to be volatile since Fed, ECB, and BoJ rate decisions will be announced along with month-end adjustments.

Spot USDINR has strong support at 81.75 and resistance at 82.30. In accordance with the derivative data, the pair is expected to settle at around 82 by the end of July.

The equity markets trended higher during the week and made a series of fresh closing all-time highs. The continued inflow of FII money and improved sentiments led to buoyancy in domestic equity markets. The healthy results in the ongoing earnings season, value unlocking through HDFC-HDFC Bank merger & Reliance demerger, expectations of inflation peaking out globally and indications of a soft landing in the US were some of the factors providing the backdrop for positive sentiments. Going ahead, over the near term, the ongoing earnings season and FII flows would continue to hold away over equity markets; some profit booking though cannot be ruled out.

Indian rupee closed marginally higher at 81.95 per dollar versus previous close of 81.99.

Benchmark indices ended lower on July 21 with Nifty below 19,800.

At close, the Sensex was down 887.64 points or 1.31 percent at 66,684.26, and the Nifty was down 234.20 points or 1.17 percent at 19,745. About 1578 shares advanced, 1725 shares declined, and 117 shares unchanged.

Biggest losers on the Nifty included Infosys, Tech Mahindra, HCL Technologies, HUL and Reliance Industries, while gainers were L&T, ONGC, NTPC, SBI and BPCL.

Among sectors, Information Technology down 4 percent, FMCG shed 1 percent and Metal down nearly 1 percent, while Capital Goods index up 1.7 percent.

The BSE Midcap and Smallcap indices ended with marginal change.

The downward spiral in gold prices continued but the fall was marginal, prices were lower by 0.02% a slight decrease from the previous week. However, the dip was considerably better than the 1% drop from the week prior.

On the other hand Gold prices rose to Rs 59543.00/ 10 gms in the domestic market. Internationally, gold continues to trade at $1,968.30 per ounce.

A minor pullback in the currency rate of the US dollar has led to some optimism amongst Gold buyers.

In the domestic market, there seems to be a bit of a worry with regard to data projecting a fall this fiscal year in exportation by approximately 10 – 15% this fiscal year. However, with the onset of coming festivities, there seems to be optimism in the rise of purchases towards the end of H2 2023.

-Buy rating, target at Rs 1,550 per share
-Q1 broadly in-line & new deal wins were up 10 percent QoQ
-Management cut FY24 growth guidance drastically to 1-3.5 percent YoY
-Lower estimates by 2 percent
-See limited risks of further earnings cuts & expect 10 percent EPS CAGR over FY23-26