What a day it was today—extremely unpredictable. Nifty was going upwards while the rest of the stocks, especially small caps, were going downwards. There were many turns during the day, with a lot of options players getting trapped on the wrong foot in Nifty options trading today.
Today’s discussion will cover market movements, specifically Nifty’s surprising rally, profit booking before the budget, sector-specific performances, and Donald Trump’s potential impact on the market.
Market Overview
So, where is the market headed? Nifty is up 0.76%. Remarkable rally in Nifty. Just this morning, I sent out a tweet that the Nifty management in the markets has been phenomenal, whatever may be happening to any sector or sub-segment of the market. Nifty has been managed very well, whether it’s a sector rotation that happens or some specific stocks take off. People are watching Nifty and trading other parts of the market, which is never a good idea. If Nifty is going up, and you want to trade based on that, then you should be trading Nifty stocks. If you’re trading small caps, then look at the small-cap index to see what it is doing, because in today’s session, Nifty and small caps were totally poles apart.
Nifty Next 50
The Nifty Junior, which is a large cap index, fell down but took exact support near its previous highs. However, overall, it was down 1.09%.
Nifty Mid and Small Cap
Midcaps were also down nearly a percent at 0.94% and are still in that trading range that has got established. Small caps were also in that trading range towards the lower part of the trading range. Today’s session triggered some sell-offs before the budget.
Nifty Bank Overview
Bank Nifty was up 0.43%, not falling with the rest of the market.
GOLD
Gold has been going up, closing at 7615, virtually near all-time highs. There is talk in the market that this budget will reduce the gold import duties, but I particularly don’t believe in that. Due to this talk, MCX and even the India Bullion Jewelers rate, the IBJA rates that come out every day, are trading at a discount. If there is no duty cut, gold is available cheaper for the next two or three days.
Nifty Heatmap
Today, TCS, Infosys, HCL Tech, and Wipro were all gunning up with Infosys results coming just after the market, and the Infosys ADR in the US market is up 5%. Tomorrow, we will likely see a pop in IT stocks again, supporting Nifty going forward. We also had good support from ONGC, Mahindra & Mahindra, Hindustan Levers, ITC, LTIM, Tata Consumers, and Bajaj Finserv. It was more of a move towards defensives, with FMCG taking the front lead.
Sectoral Overview
In terms of sectors, IT and FMCG did well, with IT up 2.2% and FMCG up 1.0%. Nifty itself was up 0.8%. The rest of the market was very flat and slightly negative. Real estate was down 0.3%, metals down 0.9%, and public sector enterprises, which have been running in the last year, saw some sharp losses at 1.4% on the index, with many of them down five to six percent as well.
Sectors of the Day
Nifty IT Index
IT stocks have been moving up strongly since the election bottom, and just two days back, the correction came down to retest this breakout. Today, we are at 40,000, starting from nearly 31,000, an almost 30% gain within a matter of six weeks. Most IT stocks are making good gains, and with Infosys results cementing the outcome of the recent TCS results, the IT sector is on a strong footing for the upcoming quarter.
Stocks of the Day
Just Dial
Dial moved up 20% today to the highest in eight years after strong margins and a Q1 beat. The market was not expecting this kind of result, but it was a huge surprise. On a long-term basis, on a monthly chart, Dial has broken out, and today’s price has matched where it was in 2015-16. Those who bought in 2014-15 are now getting nearer to their cost price after ten years.
This is not a good way of investing, where you have to wait a decade to get your price back. You don’t know whether there will be any gains or not. If you bought somewhere in this region or even at the IPO level, you got very poor results so far. But if you made some part of those rallies, you would have made decent money. Look to get the trend of the stock rather than just buy and hold and keep waiting.
Story of the Day
Donald Trump has the ability to disrupt the markets. However, let me first give a qualifier. I am no expert in geopolitics or the US economy. These are just my thoughts, rightly or wrongly. Please take them with a pinch of salt. My sense is that every time there is a regime change, there is a huge potential for disruption in the market. One person can come and change the course of history. In the Indian context, in 2014, this was possibly the case. In the US, for instance, when President Nixon was there, he single-handedly closed the dollar backing of gold and changed the course of the next millennia. It all depends on who is that one person who can shake up the world and make new trends happen. Most of the time, everything goes in a pretty much same direction without much disruption, maybe some tinkering here or there, but there hasn’t been a huge disruption in the last many years. Now, with the way things are going, the way Trump has been made a demigod for a lot of states in the US, especially after the attempt at assassination, he has emerged as a favorite. The probability of his election, as per the betting sites, is very high. He has very specific agendas that he’s talking about. Whether he will execute that agenda is another issue. Maybe it is only political election rhetoric, but it doesn’t seem like that.
US Market: Recently, there has been huge pressure on semiconductor and chip stocks in the US. Trump is saying that he will come heavy on China, and any external semiconductor trade restrictions can be put, with a lot of tariffs especially from Taiwan’s perspective. So far, China has been saying that they want to annex Taiwan, and the US has been saying they will not let them. Now Trump says he may not come in defense of Taiwan, which has set the cat amongst the pigeons. Taiwan has taken the US chip business, with 70-80% of it in Taiwan. The US is very dependent on Taiwan for that, making Taiwan very wealthy. Trump’s policy is to make America great again by bringing manufacturing back and not depending on others. He wants to raise high barriers for others so that imports into the US are restricted. Nasdaq was down 3% just on some talk about semiconductor stocks not being in favor. Nvidia was down 6.6%, and it is now down 16%. If we go below this support, Nvidia’s major run looks over. AMD was also down 10% yesterday. Most of our computers are now either Intel or AMD chip-based. This has had a big hit on that stock. Trump acknowledges the likelihood of a 1% corporate tax to encourage local manufacturing and prefers simplicity and lower rates, but notes the challenge in the same. He is not in favor of lower rates.
Oil: Trump has great resistance to the current path of thought process regarding oil. He emphasizes reducing energy costs and increasing US oil supply. Oil is likely to become the new gold for the US, and they want to take control over the oil markets.
China Tariffs: Trump wants to raise tariffs on China significantly and use it as a negotiation tool. On the interest rate front, Trump says he doesn’t like the current thesis of lower rates. He will allow Powell to service his term if he manages rates well but wants to keep rates steady and not go down the quantitative easing route. He has been focusing on the dollar in his speeches, saying it is extremely strong versus the yen and yuan, which is why US exports are not taking off. Given his choice, he would want the dollar to be weakened versus other currencies. This has not been the policy so far, which has been to keep the dollar strong. Gold has sensed this, especially since the day of his attempted assassination, and has been skyrocketing to a new high. If the dollar is weakened, gold is likely to do very well.
Europe: Trump criticizes the US-EU trade relationship similarly to China and wants more restrictions with the EU. Essentially, there is likely to be a complete overhaul of the US policy. US is the mother market of the world, with 20-25% of global GDP but 70-75% of market cap. The US market cap is high while the GDP percentage is lower. This could correct, with the US GDP expanding with more manufacturing and the market cap potentially not remaining as high.
India: India could be huge beneficiaries. As China tariff barriers go through the roof for the US, it is a golden opportunity for India to come into place for items and services we can deliver. Our defense export is catching up, and textiles are doing well. Tariffs to India may remain the same or get lowered, and the new regime could view India as a preferred nation versus China. However, if the dollar remains weaker, it may cause the Indian rupee to appreciate, harming some exports. On the flip side, easier policies on interest rates could lead to money flow towards emerging markets, causing them to rise. The dynamics of Trump are somewhat similar to those of Modi, somewhat authoritarian while being in a democratic setup. Some of his policies may work very well for us, especially in the realm of manufacturing, as we can attract many industries from China, but the stock market may face turbulence.
