Market meltdown may continue amid global headwinds

Spooked by fresh US tariff on pharma, higher visa fees, persistent FII selling, falling rupee and weakening dollar; the domestic stock markets snapped three-week winning streak and posted worst weekly fall in nearly six months. Donald Trump has dealt two fresh blows to investor sentiment just as the market was showing signs of a turnaround.

For the week, NSE Nifty shed 672.35 points or 2.65 percent to finish at 24,654.70, while BSE Sensex index fell 2,199.77 points or 2.66 percent to end at 80,426.46. In the broader market, the BSE Mid-cap Index shed 4.5 percent and the BSE Small-cap index declined 4.2 percent. FIIs were net sellers of Rs19,570 crore in the week, while DIIs bought equities worth Rs16,200 crore. On Friday, FIIs sold Rs5,687.58 crore, while DIIs purchased Rs5,843.21 crore. Year-to-date, FIIs have sold Rs1.48 lakh crore worth of equities, extending their selling for the 13th consecutive week. DIIs continued their buying for 24th week.

All sectors settled in the red on a weekly basis, with the most severe fall reported in IT stocks followed by realty, consumer and healthcare. Indian rupee touched fresh record low of 88.80 to end near the low at 88.71 per dollar in this week.

The Indian rupee traded in the range of 88.80-88.12 during the week. It is pertinent to observe that international crude oil prices rose over four per cent for the week as Ukraine’s strikes on Russian energy infrastructure prompted Moscow to restrict fuel exports.

Higher crude prices pose inflation risks by raising transport and input costs. The RBI’s monetary policy committee will begin its three-day meeting on Monday, with the outcome due Wednesday, October 1. The central bank is widely expected to keep the Repo rate unchanged at 5.5 per cent. Going forward market players expect continued heightened volatility with a cautious bias, as markets digest global trade headwinds and await the RBI’s policy decision with attention on Q2 earnings season. Overall, market observers agree that the near-term outlook for Indian equities, particularly in terms of foreign flows, will continue to be determined by geopolitics.

Contrarians suggest adding exposure to domestically driven sectors such as consumer and financials, which are less vulnerable to Trump’s America First agenda. It is worthwhile to remember that once considered the safest bets, blue-chip names like TCS, Infosys, DMart, Asian Paints, and HUL have stunned investors with flat or negative returns over the past four years. In the YTD, the Nifty corrected nearly six per cent, but out of top 750 stocks, only 245 have given positive returns. In the present environment, stock selection holds key for outperforming returns.

That is another testament to the fact that investing without education and research will ultimately lead to regrettable investment decisions. Research is much more than just listening to popular opinion.

F&O/ SECTOR WATCH

Amid persistent FII outflows and uncertainty surrounding US-India trade talks; the Indian equity markets came under broad-based selling pressure during the week ended. The impact was visible across sectors, with benchmark indices extending losses. On the weekly charts, the Nifty declined by more than 2.5 per cent, while the Bank Nifty slipped close to two per cent.

Ahead of the settlement week, in the options segment, the highest Call Open Interest for the Nifty was observed at the 25,000 and 24,800 strike levels, while notable Put Open Interest stood at the 24,500 strike. For the Bank Nifty, significant Call Open Interest was concentrated at the 55,000 strike, with substantial Put Open Interest seen at the 54,000 strike.

Implied Volatility (IV) for Nifty’s Call options settled at 9.91 per cent, while Put options concluded at 10.78 per cent. The India VIX, a key indicator of market volatility, concluded the week at 10.78 per cent. The Put-Call Ratio of Open Interest (PCR OI) stood at 0.57 for the week. Also, the PCR ratio for the October contract dropped from 1.4 to 1 over the past week.

These are indications of a relatively greater number of Call options writing, a bearish signal. With the Nifty slipping below the psychological level of 25,000 as well as the crucial support of the 100-day exponential moving average, the current momentum of the down swing may extend. The next key support lies near the 200-day EMA around 24,400, while resistance at 25,000 mark.

Nifty futures is likely to oscillate between 24,650 and 25,200 in the near term despite the bearish indications from the derivatives data. Market participants are advised to closely monitor Nifty’s movement at these levels. If the index continues to trade below these averages, it may support a bearish outlook, making a ‘sell-on-rise’ strategy more favourable for traders. Stocks looking good are Ashok Leyland, AU Bank, Adani Energy, JSW Steel, L&T, SBI and Vedanta. Stocks looking weak are Biocon, Brittania, Coforge, IIFL, Mphasis, Marico and Syngene.

(The author is a senior maket analyst and former vice-chairman, Andhra Pradesh State Planning Board)

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