what a day it has been. We witnessed a waterfall session for most global markets, although India managed to escape the worst of it, as I will show you later in this video. So, is this the end of the short-term bull rally that started from the election day low on June 4th? We’ve had two months of good gains, culminating on August 5th. Is this the end of this particular run?
Market Overview
The market certainly looks headed down. The resilience of the market has been phenomenal all these months. This resilience was also showcased on June 4th, when the market collapsed from nearly 23,300 to 21,300—a 2,000-point cut that was recovered within three sessions. Now, we have another nearly 1,000-point cut from the 25,000 closing two days back, and today we’ve closed at 24,000. The technical chart has been disturbed for sure. But there are two big gaps on the upside now above 24,000, nearly up to 24,900. The market needs to make a U-turn and cover these gaps to sustain above them, or it may gradually come off, take support at 23,400, and then build a new base. This could give time for other markets to stabilize and consolidate because right now, it feels like a falling knife.
The Japanese market is leading this downturn, followed by the US market, and all other markets are following suit. The leadership position currently depends on the Japanese market. Once it starts to turn, everything else might follow. The India VIX is up by 50%, indicating heightened market volatility.
Nifty Next 50
Nifty Junior is closing within the support line around 71,000. While it is down, it’s not completely smashed. We are still in the zone of potential upward movement, but this could be an occasion for a short downtrend.
Nifty Mid and Small Cap
Midcaps are taking support at previous bottoms, down by 3.52%, losing about a month and a half of gains. Small caps saw a bigger cut at 4%, losing six weeks of gains.
Nifty Bank Overview
Bank Nifty has broken down from the election day high and recent lows, barely holding above 50,000, and looks weaker than other indices.
Nifty Heatmap
Today’s heat map is predominantly red. Major names like HDFC Bank, Reliance, State Bank, Tata Motors, and Maruti saw significant cuts. Defensive stocks like ITC, Britannia, Tata Consumers, and Sun Pharma managed to stay relatively stable. Nifty Next 50’s heat map also shows deep cuts in stocks like Motherson, Bosch, Vedanta, Adani Green, Adani Power, LIC, IRFC, and REC.
Sectoral Overview
Sectoral trends show metals leading the decline at -4.9%, followed by real estate at -4.3%, PSU banks at -4%, and autos at -4%. Real estate has lost 9% in the last five sessions. FMCG was the least hit at -0.3%, pharmaceuticals at -1.5%, and consumption at -1.8%. The defensive sectors did not escape unscathed, reflecting the broader market downturn.
Stock markets are sentiment leaders. A decline in market sentiment affects consumer confidence significantly. When markets are down, people tend to postpone big purchases like cars or real estate, impacting overall economic activity. If this downturn continues, we might see interventions like a surprise rate cut from the US Fed to stabilize the market.
Sectors of the Day
Nifty REALTY Index
Real estate also is weak versus other sectors in the market, down 4.3%. Stock markets are a sentiment leader. So, as soon as the stock market sentiments come off the highest notch to maybe normal, you will find that even the physical real estate will also see buyers vanish overnight. So, this is a ripple effect into the confidence of the economy. Whenever stock markets are down, you will find that people will take a step back. If somebody is going to buy a car tomorrow, they will take a step back. If somebody was going to make a big transaction in real estate, based on whatever assets they had and the leverage, and now the assets are suddenly down 5% in a day, they will take a step back. So, it is all a chain reaction that starts. And that chain reaction basically reduces the confidence level of the consumer in a very big way. If you were going to make a large discretionary spend tomorrow with your portfolio getting cut like this today, brutally, you probably would pass that item of choice for now. So, this is how the mind plays games, and that’s how consumer sentiment goes.
Stocks of the Day
Lux Industries
There were a few stocks I saw which were up circuit also and Lux Industries was up 9%. So whenever the market stopped to fall, look out for more gains in such stocks because these stocks are showing you today that there is a huge strength, relative strength in those stocks.
Story of the Day
Whenever the market stops falling, watch for gains in strong stocks, as they show relative strength. Recently, the Nikkei 225 hit an all-time high of over 42,000 but then dropped by 26% in just 16 sessions. This highlights the inherent volatility in markets. Investors should understand that markets can experience significant drops and should not assume continuous upward trends.
In Japan, the carry trade involves borrowing at low interest rates to invest in higher returns elsewhere. With Japan’s historically low rates, many institutions borrowed cheaply to invest globally. However, when the yen strengthens or interest rates shift, these trades can unwind, causing market stress. Recently, the USD/JPY rate fell by 12% due to interest rate changes, impacting carry trades.
Indian businesses, like those in other countries, might also be affected by these currency and interest rate fluctuations. It’s essential for investors to remain calm and adhere to their long-term strategies, as panic can be detrimental. The market’s short-term movements should be seen as part of its natural behavior, and not as a cause for immediate concern unless one’s strategy dictates otherwise.
