Samay Shetti highlights on how the Indian markets hold its footing against global economic tightening and pressure
Going through one of the most eventful months of the Indian as well as global markets, the June series has been a roller coaster ride which has provided great trading opportunities for both the seasoned bulls and bears. And here we are, having crossed the third weekly expiry of the June series on the 16th.
Let us do a quick review of the month that went by; the May series gave a close on a defiant note at 16105 backed by a strong buying action following a sideways bearish trend. The June series gave a promising start with two consecutive gap up openings and making a high of 16793, touching the resistance zone of 16800. The 600 points rise that the June series saw in its first week could not, however, sustain. The following two weeks were very crucial for the global economy as major announcements were on the charts, owing to which Nifty saw a steep decline of 1575 points.
Well, ‘Gabbar’s Pistol’ fired after three blanks and the Indian Markets broke its support after knocking on 15800 three times. After touching the level again on the 13th with a massive gap down of 321 points from its previous support zone of 16200 over the weekend and closing the day at 15774 Nifty 50 hit its 52 week low (Lowest in the past year) on the 17th, a day after the weekly expiry.
Triggers: Well as the old saying goes, “If America sneezes, the world catches a cold” which has been seen clearly. The GDP showing a decrease over the last two quarters and the inflation rates shooting through the roof, the stage has been set for the US economy to go into recession, to counter this situation the Federal Reserve on 15th took an aggressive step of jacking up the interest rates by 75 basis points, the ripples of which were seen in the Indian markets too with a straight fall of 331 points in Nifty on the expiry day. The RBI too had increased the rates in the previous week on the 8th with 25 basis points. The European Central Bank announced that it will be hiking its rates for the first time in 11 years. While the tremors of these statements were being felt, the sell-off spree of the FIIs continued with their long positions in Indian Markets reaching lower lows with every consecutive trading session.
The commodity prices especially the brent crude and natural gas also saw a spike, while the sanctions placed by the US on Iran further added to the oil woes.
These aggressive hikes by the Central Banks of global economic powerhouses, led by the US while necessary to curb the inflation, are bound to have a drawn-out effect on global commerce. The lower liquidity would lower the consumption, coupled with the expensive credit, which will hinder the growth of industries and businesses, thus disturbing the natural cycle of economic boom and recession.
Sectoral view: As of last month, along with Nifty 50, most of the prominent stocks, both Largecaps and Midcaps from various sectors were on their support or approaching their support, however, with Nifty breaking down from the 15800 support range, most of them broke their supports too, let’s have a quick review of where they currently stand
Auto: The Auto sector has been holding up its own since 12th May and saw a straight rally of 1450 points, ie. 14.25% peaking at 11600 on the first of June the sector held itself well above its 200 MA for two weeks of the June series with a slightly bearish trend, but dipped below the line after the 3rd weekly expiry, as Nifty rounded the lows of 15200, the auto sector too saw a pullback and rested exactly on the 200 MA line as of 21 June.
In this space, Tata Motors has just given a bounce from its support after retesting the zone for the second time; Eicher Motors has held itself above its 200 MA line and has taken a bounce from it; while TVS Motors is flirting with its all-time high of 775, while currently trading at 744 as seen on the weekly chart. M&M is seeing a slight downward move after hitting its all-time high on the 8th, Maruti Suzuki is moving sideways while Hero Moto Corp has just taken a bounce from its 200 DEMA mark after a steep correction.
Info Tech: No sector has taken as much bashing as the IT sector since January 2022. From its height, over the last 5 months, the sector has declined by 32.15% and is currently at its 52-week low. However, it has taken a bounce as seen on the daily chats from its strong support zone of 26600. It remains to be seen if this move sustains or if it is just a temporary pullback.
In this sector, Infosys, TCS, Tech Mahindra and LTI are at good support zones; Persistent and Mphasis are on a downtrend while Tata Elexi and Mindtree are on minor supports.
Buying opportunities can be explored in this sector, but only on the stocks that respect their supports and show good signs of reversal.
Realty: Nifty Realty too has been in a downtrend since it peaked out in November 2021, since then it has continued giving lower highs and lower lows on every rally. This index too rests on its 52 week low, trading way below its 200 MA mark with a 34% decline from its high.
In this space, DLF, GMR Infra, Prestige, and Brigade have seen a strong correction but are precariously placed on minor supports; Sobha after a steep correction, now rests on a strong support, while Godrej Properties continue its downtrend.
FMCG: This sector has held its levels since April and had been moving within a 7% range on both sides while playing jump rope with its 200 MA mark. As seen on the daily charts, this index has given a strong bounce from its previous support of 36213 and now approaches its 200 MA line again.
In this sector, Hindustan Unilever, Marico, Britannia, Tata Consumer and Dabur have taken a bounce from their respective supports; while Emami continues to be in a downtrend; and ITC is flirting with its highs also having just taken a strong bounce from its 200 DEMA mark.
Sugar: This sector has turned out to be one of the most volatile sectors with a regular inflow of news on policies related to it. Recently the government released the figures to cap the exports of sugar at 10 million tonnes, which sent the stocks plummeting after a strong upward spike.
As of 21 June, Dhampur Sugar is at a 65% decline from its April high, Dalmia Sugar just gave a breakdown from its 200 DEMA mark ad is continuing the trend, Dwarkesh Sugar, Mavana Sugar, Balrampur Chini are in the middle of a steep correction approaching a support; while EID Perry is continuing its rally.
Pharma: Another sector that has been on a downtrend since October 2022, Pharma has been producing lower highs and lower lows on every rally. Currently, at a 20% decline from its high, and trading below its 52-week low, this index too has taken a bounce from its support zone of 11750.
In this sector, Divi’s Lab, Auro Pharma is trading on a good support, Dr. Reddy, Zydus Lifesciences is positioned on a minor support, Biocon is in a sideways congestion zone; Lupin is near a bottom; while Sun Pharma is having a correction after a straight rally since April and is approaching a minor support
Banks: After Nifty, the next most sought-after index is the banking sector. Bank Nifty, like Nifty, knocked on its support thrice, but unlike Nifty, it has not given a breakdown below its level 32350. This index too, has given a strong bounce after its third knock on the level. From this sector, the HDFC twins, Axis Bank, ICICI Bank, Federal Bank, Kotak Bank, and SBI, have all taken a bounce on their supports while RBL Bank, IDFC First Bank continue their downtrend and Canara Bank is trying to find a footing on its minor support.
Ending note: All in all, the markets are heavily oversold, and in this situation of panic and constant news flows, the credit for holding the Indian markets up goes directly to the Domestic Institutional Investors and Retail Investors.
Having said that, the markets are now in a precarious zone where it is good for only for long term investors and traders, as with this level of selloff a pullback is bound to come and it may be very tempting to jump onto the bandwagon, however, this opportunity must be used to exit the positions by those who are currently feeling stuck in the markets. For long-term investors, this is a good time to enter the stocks that are on their strong support levels and their 52-week lows as the risk-reward ratio for these stocks is conducive for decent profits with stop losses also being close, it is good for swing traders too but only on the condition that they trade with a good target a few points shy of their resistances and they move with trailing stop-losses.