Taking Stock | Stagflation fears spook investors; Sensex sinks 1,017 pts, Nifty ends at 16,202

Impacted by these negative sentiments and weak cues from other Asian markets, the Indian indices opened lower with a gap of around 1 percent in the morning and kept falling through the day with some intermittent bounces which did not cross the morning highs.

“After a streak of 3 weekly gains, Nifty ended lower for the week by 2.31% and bounces remain short-lived as traders and investors keep selling into them”, said Deepak Jasani, Head of Retail Research, HDFC Securities.

The US Fed meet on June 14-15 will be the next big event affecting the sentiments. “Nifty has closed below the gap support of 16,204. Now 16,026 will be the next support while 16,356 will be the resistance”, added Jasani.

Investors are waiting for US CPI inflation data for May today. They expect the US Federal Reserve to hike rates by 50 basis points next week, especially if data confirms an elevated inflation reading.

Market sentiments are also getting severely impacted by the rising crude which is currently trading at over $120 bbl fuelled by intensifying geopolitical tensions between Russia and Ukraine, and tightening by global central banks. As oil boils, India's current account deficit is likely to hit a three-year high of 1.8% or $43.81 billion in FY22, as against a surplus of 0.9% or $23.91 billion in FY21, according to India Ratings.

“Persisted foreign fund outflow and widening trade deficit due to the elevated oil prices led to depreciation of INR, weakening the sentiment", said Vinod Nair, Head of Research at Geojit Financial Services.

Stocks & Sectors

Among sectors, Oil & Gas, Metals, Banks, and IT indices fell the most while the Telecom sector ended minorly in the positive. While the Smallcap and Midcap indices fell less than the Nifty, the advance-decline ratio ended sharply in the negative.

All the broader indices were in the negative territory with BSE Midcap losing 0.64 percent and BSE Smallcap falling 0.7 percent.

The India VIX, which indicates the degree of volatility traders expect over the next 30 days, increased 2.27 percent from 19.14 to 19.58.

Kotak Mahindra Bank, Bajaj Finance, HDFC, Hindalco, and Reliance were the top losers on the Nifty as they lost between 3.02 to 3.94 percent.

Among the top gainers today, Grasim, Apollo Hospital, Asian Paints, Sr Reddy’s, and Divi's Labs, ended with small gains between 0.59 to 1.33 percent.

Among specific stocks, the short build-up was seen in First Source Solutions, Indiabulls Housing Finance, and Choladmandalam Finance while long build-up was witnessed in Deepak Nitrite, Trent, and Torrent Power.

Of the 3,429 stocks traded on the BSE, there were 1,298 advances for 2,010 declines and 121 stocks remained unchanged.

Outlook for June 13

Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities

Indian equity markets ended the week on a negative note. Major key indices and sectoral indices declined during the week. Amid persistent inflation, central banks continued with monetary policy tightening. RBI hiked the repo rate by 50 bps to 4.9%. European Central Bank decided to end net asset purchases under its asset purchase programme and also signalled a rate increase in its July monetary policy meeting. Crude oil prices inched up with Brent crude trading above the $120 per barrel mark. The US 10-year treasury yield again moved above 3%. FIIs continued with their selling of Indian equities. Monsoon progress needs to be watched out for as a good monsoon will calm concerns about further food inflation. However, inflation, commodity price movement, and central bank measures are critical factors for market performance over the near to medium term.

Ajit Mishra, VP - Research, Religare Broking Ltd

After a minor pause in yesterday’s session, the market resumed its downturn and shed over one and a half percent. The benchmark opened the gap down as participants remained worried about ECB rate guidance in Europe and awaiting US inflation data outcome. The bias remained negative for most of the session however marginal rebound in the last hour trimmed some losses. Consequently, the Nifty ended with sharp losses of 1.7% at 16,201 levels. All the sectoral indices ended lower largely dragged by financials, IT, metals, and energy. On the broader market front, both midcap and smallcap lost in the range of 0.8-1.2%.

Markets will continue to take cues from the global markets in absence of any major domestic event. First, participants will react to the US inflation data and upcoming macroeconomic data (IIP, CPI & WPI) will also be in focus. While the index is gradually inching lower, a mixed trend on the sectoral front is offering opportunities on both sides so traders should align their positions accordingly.

Amol Athawale, Deputy Vice President - Technical Research, Kotak Securities Ltd.

The pessimistic mood across several global markets had a rub-off effect on local equities as nagging issues like rising interest rate scenario, higher inflation levels, and persistent FII selling spooked markets. Bigger concerns of stagnating growth and its effect on corporate earnings going ahead are also making investors nervous, resulting in periodic selloffs.

Technically, after a long time, the Nifty closed below 20-day SMA and, on intraday charts, it is consistently forming a lower top formation which is largely negative. On weekly charts, the index has formed a long bearish candle indicating a further downtrend from the current levels. If the Nifty falls below 16,150, it could slip up to 16,000-15,850 levels. On the flip side, a fresh pullback rally is possible only after the 16,300 breakouts; above which, the index could move up to 16,400-16,500.

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