Markets Continue to Sway Up and Down

Since the backdrop and sentiment of the market is so negative, let’s start this editorial with some silver lining. The good news is that WTI crude oil prices have fallen over 17 per cent from its recently made high of USD 123.7 and this marked its lowest levels in a month as it slipped below the USD 102 mark on Wednesday. However, the fall in oil prices is amid mounting concerns that raising US interest rates aimed at curbing soaring inflation would cause a recession and slowdown in oil demand. Furthermore, the clearest indication that the market is now getting anxious about growing concerns of recession is the fact that the bond yields in the US are sinking. 

This is not just US story. It has happened in the UK and France as well. Meanwhile, as per the minutes of the Monetary Policy Committee (MPC), the threeday meeting expectedly showed an increased degree of anxiety among members regarding the upside risk to India’s inflation amidst surging commodity prices. However, the governor said the revival of economic activity remains steady and is gaining traction. From the West, the US Fed chief, Jerome Powell, reiterated his commitment to combat inflation through higher interest rates, but said a recession couldn’t be ruled out. 

Talking about the performance by the Indian benchmark indices on a MTD basis, these have relatively outperformed the Dow Jones, S and P 500 and the Nasdaq indices. Meanwhile, on a WTD basis, the Nifty index is in green as it has jumped over 1 per cent. Among the sectors, majority of them had a good outing barring Nifty Metal and Nifty Energy. The top two gainers on WTD basis were Nifty Auto and NiftyIT. Nifty Auto on a WTD basis has jumped up nearly 5 per cent because reports indicated that the passenger vehicle makers in the local market are set to report their highest-ever monthly sales this June. 

This is on account of the consumer demand staying strong amidst an easing in parts’ shortage that disrupted output through the greater part of the past year and also the cool-off in the crude oil prices that acted as a cherry on the top. Nifty IT too zoomed nearly 5 per cent and interestingly all the stocks from this sector have delivered positive returns. Meanwhile, talking about Nifty Metal, the tide has turned for the sector after a massive outperformance. The index has plunged sharply from the April highs and has formed a ‘death cross’. The formation of a death cross is a signal of more pain ahead for investors. 

Moreover, we don’t see any substantial recovery in these counters in the near term amid restrictions and curbs induced by the corona virus scare in China, one of the largest consumers of metal in the world. Technically speaking, going ahead, the index needs to decisively close above 15,900 with improving market breadth that will confirm end of corrective phase and open the door for extended pullback in the coming sessions. Failure to do so would lead the index to undergo consolidation in the range of 15,150-15,900 amid stock-specific action. Meanwhile, immediate support for the Nifty is placed at last week’s low of 15,183.40 and the breach of 15,183.40 on a closing basis would lead to extended correction towards major support zone of 14,350.