Dalal Street’s march to new heights halted amid hawkish Fed and gloomy global economic outlook. What lies ahead?
Domestically, traders remained cautious with the Reserve Bank of India’s data that showed India’s forex reserves dropped by USD 1.318 billion to USD 593.749 billion for the week ended June 9.
- Jun 24, 2023,
- Updated Jun 24, 2023 5:53 PM IST
In the passing week, Indian benchmark indices ended in red territory on renewed concerns over the outlook for interest rates following the hawkish remarks by US Fed Chair Jerome Powell, who reiterated the Fed is likely to continue raising interest rates to contain stubbornly elevated inflation.
Domestically, traders remained cautious with the Reserve Bank of India’s data that showed India’s forex reserves dropped by USD 1.318 billion to USD 593.749 billion for the week ended June 9. Selling pressure further crept in with a private report’s warning of delayed monsoon this year.
Selling in the final two days of the week mainly played the spoilsport. It dragged key benchmarks lower for the week as traders turned pessimistic after rate hikes from policymakers in England, Norway and Switzerland pushed global bond yields higher. These events led the BSE Sensex to fall 405 points, or 0.64 per cent, at 62,979.4 during the week ended June 24, while the Nifty slipped 161 points, or 0.85 per cent, to 18,665.5.
Market Macros: Vinod Nair, Head of Research at Geojit Financial Services said that the domestic market sailed through a rough week, facing unexpected ups and downs as it hovered around its historical peaks and exhibited cautiousness stemming from weak global cues. This volatility was more evident in mid and small-cap stocks, which witnessed increased selling as investors booked profits following a strong recent rally.
On the global economy, Nair said “In the global context, central banks worldwide are currently focused on addressing inflation and have reiterated their commitment to achieving their target levels. This is reflected in the hawkish commentary from the Fed Chair and the rate hikes by the central banks.” Conversely, the decision of Chinese central banks to cut rates after a 10-month pause has raised concerns about the health of the Chinese economy.
He added that despite these global concerns, the domestic market is not anticipated to undergo a significant correction. This is due to favourable domestic economic indicators and a correction in international commodity prices, which are expected to sustain earnings growth on a QoQ basis” Nair said.
As many as 10 stocks in the Nifty 50 index delivered a positive return for investors in the week. With a gain of 3.4 per cent, Tech Mahindra emerged as the top gainer in the index. It was followed by HDFC Life Insurance (2.8 per cent) Housing Development Finance Corporation (2.7 per cent), HDFC Bank (2.6 per cent), and Bharti Airtel (2.3 per cent). Power Grid, Dr Reddy's Lab, HCL Technologies, and Tata Consultancy Services also advanced by over one per cent. On the other hand, Bharat Petroleum Corporation, Adani Ports, and Hindalco Industries declined 4.6 per cent, 4.4 per cent, and 4.3 per cent, respectively. Sector-wise, all major sectoral indices ended in the red, the BSE Metal index declined the most (2.4 per cent) during the week gone by. While BSE Oil & Gas and BSE Realty indices have registered a weekly loss of 2.2 per cent, and 2.1 per cent, respectively.
Technical Outlook for next week
Nagaraj Shetti, Technical Research Analyst at HDFC Securities said, “After resuming weakness from the new swing high of 18886 levels on Thursday, Nifty continued with sharp follow-through declines on Friday and closed the day lower by 105 points. A long bear candle was on the daily chart, which is back-to-back in the last two sessions. Immediate support of daily 10-day EMA has been broken on the downside at 18730 and Nifty tested another support of 20-day EMA around 18650 levels. The 20-period EMA on the daily chart was sustained in the last few months and witnessed upside bounces from its support during dips in the past. Hence a decisive move below 18650 levels could open sharp weakness for the underlying Nifty.”
Shetti added, Nifty on the weekly chart formed a long bear candle from the highs. Technically, this pattern signal formation of a 'dark cloud cover' pattern at the swing highs. Previous such reversal patterns in the past have witnessed substantial weakness in the market.
“The short-term trend of Nifty is about to reverse on the downside. Further decisive weakness from here could open intense selling pressure for the coming week. The next lower support is at 18370-weekly 10-period EMA. Any upside bounce could encounter a hurdle at 18760 levels,” he said.
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In the passing week, Indian benchmark indices ended in red territory on renewed concerns over the outlook for interest rates following the hawkish remarks by US Fed Chair Jerome Powell, who reiterated the Fed is likely to continue raising interest rates to contain stubbornly elevated inflation.
Domestically, traders remained cautious with the Reserve Bank of India’s data that showed India’s forex reserves dropped by USD 1.318 billion to USD 593.749 billion for the week ended June 9. Selling pressure further crept in with a private report’s warning of delayed monsoon this year.
Selling in the final two days of the week mainly played the spoilsport. It dragged key benchmarks lower for the week as traders turned pessimistic after rate hikes from policymakers in England, Norway and Switzerland pushed global bond yields higher. These events led the BSE Sensex to fall 405 points, or 0.64 per cent, at 62,979.4 during the week ended June 24, while the Nifty slipped 161 points, or 0.85 per cent, to 18,665.5.
Market Macros: Vinod Nair, Head of Research at Geojit Financial Services said that the domestic market sailed through a rough week, facing unexpected ups and downs as it hovered around its historical peaks and exhibited cautiousness stemming from weak global cues. This volatility was more evident in mid and small-cap stocks, which witnessed increased selling as investors booked profits following a strong recent rally.
On the global economy, Nair said “In the global context, central banks worldwide are currently focused on addressing inflation and have reiterated their commitment to achieving their target levels. This is reflected in the hawkish commentary from the Fed Chair and the rate hikes by the central banks.” Conversely, the decision of Chinese central banks to cut rates after a 10-month pause has raised concerns about the health of the Chinese economy.
He added that despite these global concerns, the domestic market is not anticipated to undergo a significant correction. This is due to favourable domestic economic indicators and a correction in international commodity prices, which are expected to sustain earnings growth on a QoQ basis” Nair said.
As many as 10 stocks in the Nifty 50 index delivered a positive return for investors in the week. With a gain of 3.4 per cent, Tech Mahindra emerged as the top gainer in the index. It was followed by HDFC Life Insurance (2.8 per cent) Housing Development Finance Corporation (2.7 per cent), HDFC Bank (2.6 per cent), and Bharti Airtel (2.3 per cent). Power Grid, Dr Reddy's Lab, HCL Technologies, and Tata Consultancy Services also advanced by over one per cent. On the other hand, Bharat Petroleum Corporation, Adani Ports, and Hindalco Industries declined 4.6 per cent, 4.4 per cent, and 4.3 per cent, respectively. Sector-wise, all major sectoral indices ended in the red, the BSE Metal index declined the most (2.4 per cent) during the week gone by. While BSE Oil & Gas and BSE Realty indices have registered a weekly loss of 2.2 per cent, and 2.1 per cent, respectively.
Technical Outlook for next week
Nagaraj Shetti, Technical Research Analyst at HDFC Securities said, “After resuming weakness from the new swing high of 18886 levels on Thursday, Nifty continued with sharp follow-through declines on Friday and closed the day lower by 105 points. A long bear candle was on the daily chart, which is back-to-back in the last two sessions. Immediate support of daily 10-day EMA has been broken on the downside at 18730 and Nifty tested another support of 20-day EMA around 18650 levels. The 20-period EMA on the daily chart was sustained in the last few months and witnessed upside bounces from its support during dips in the past. Hence a decisive move below 18650 levels could open sharp weakness for the underlying Nifty.”
Shetti added, Nifty on the weekly chart formed a long bear candle from the highs. Technically, this pattern signal formation of a 'dark cloud cover' pattern at the swing highs. Previous such reversal patterns in the past have witnessed substantial weakness in the market.
“The short-term trend of Nifty is about to reverse on the downside. Further decisive weakness from here could open intense selling pressure for the coming week. The next lower support is at 18370-weekly 10-period EMA. Any upside bounce could encounter a hurdle at 18760 levels,” he said.
Also Watch: Sovereign gold bond scheme (SGB), gold funds or gold ETFs: What is the best way to invest in gold?
Also Watch: Reliance, ICICI Bank, HDFC Bank, Infosys among 10 stocks where MF exposure stood at Rs 8,00,000 crore in May