The optimism for a sustained market recovery lasted exactly 20 minutes on Monday. Not that the global bond yields, crude oil prices, or the US Dollar index had changed materially from where we had left off on Friday, but the bulls chose to not pay heed to the global factors to start the week, as there were enough and more local reasons to react to.
The measures announced by the Reserve Bank of India to shore up the currency and the subsequent strengthening of the same against the US Dollar was the only thing that worked in favour of the bulls today, but that too was confined to the sidelines as the cash reserve measures announced took banking stocks lower, while PSU Banks were impacted partly due to the surge in bond yields as well.
India’s 10-year bond yield is now at 7.4%. Sooner or later, the market will have to sit up and take note of that, which it sort of did on Monday as well. India’s inflation print for September came in largely in-line with expectations. The fact that it did not overshoot the RBI range would give the MPC some sigh of relief for the time being.
While oil prices were cooling off on Monday morning, the reversed all of those losses and are now back above the mark of $105 a barrel. Till oil prices continue to remain at elevated levels, that will remain the biggest overhang on the market, regardless of what transpires elsewhere.
Even big money managers like Amundi’s research arm went on to say that a resolution of the Iran war and a fall in crude oil prices could well mark a “turning point” for the market, which has seen the Nifty 50 decline over 14% so far this year, despite having made new highs at the start of the year.
Tuesday will be the weekly options expiry session for the Nifty 50 contracts and with the index just having managed to save the 22,300 mark on the downside courtesy of Monday’s CAS, that will remain the most important level to watch on the downside for the index. A break below the 22,300 mark could further accelerate the fall, considering the heavy put writing seen at the 22,400 strike.
On the upside, any move back towards the 22,500 – 22,550 mark could attract supply, and Monday’s high of 22,651 is now 300 points away. Apart from reacting to the inflation print, the market will have multiple earnings to react to, which were reported after market hours on Monday, including the big number of HCLTech.
With HCLTech having delivered a strong quarter and also raising its guidance for the year, it remains to be seen how the index and other IT stocks will react to this number.
ICICI Prudential AMC, RBL Bank are some of the other major earnings reactions, while ICICI Prudential Life, new listings such as SS Retail and Hero Motors, along with Transformers & Rectifiers and Tata Elxsi will be reporting their results on Tuesday.
Rupak De of LKP Securities has observed the formation of a dark cloud cover pattern on the Nifty charts, indicating that the positive momentum of Friday is losing strength, raising the possibility of the resumption of the bearish move. He sees immediate support for the Nifty at 22,300, below which the Nifty could move to 22,100 or even lower. Resistance is seen at 22,420 and at 22,650.
Going forward, the 22,230 – 22,200 zone will act as a critical support area for the index, according to Sudeep Shah of SBI Securities. A decisive move below 22,200 would mean that the ongoing corrective phase intensifies and consequently drags the index down to 22,050 levels. On the upside, 22,500 – 22,530 will act as an immediate hurdle and unless these levels are decisively crossed on the upside, the broader trend may remain weak with a negative bias, he added.
Nifty Bank continues to remain the stronger among the two indices, even as it was the bigger factor behind the Nifty fall on Monday. The index did manage to recover over 200 points from the day’s low, also aided by a final minute gain during the CAS. 54,700 – 54,500 continues to remain an important support level for the banking index, while supply continues to emerge between the 55,000 – 55,500 range.
Om Mehra of SAMCO Securities said that the Nifty Bank ended the session on Monday after forming a bearish candle and slipping below its Volume Weighted Average Price of 55,100. Call writing also seen on the 55,500 mark indicating stiff resistance. Notable put writing seen at the 54,500 mark. He sees immediate support at 54,700 – 54,500 levels, with resistance between 55,100 – 55,500 levels.