The market remains edgy today. We opened higher, but the gains couldn’t be sustained throughout the day. The results have been mixed, and overseas cues are also uncertain. While the Nikkei was up, the US markets were slightly soft, and futures indicate a similar sentiment. It’s unclear if the market has fully recovered from the current situation, so we remain in a wait-and-watch mode. We’re now at the lower edge of this recent fall, as I’ll show you in the charts shortly. One more piece of bad news could push us even lower.
Today, the RBI announced its decision on interest rates following the Monetary Policy Committee (MPC) meeting. They decided not to change the rates. We’ll discuss whether they should have cut rates in the second half of this video. However, some positive aspects of the economy were reiterated during the RBI meeting, which should provide some confidence moving forward.
Market Overview
Right now, the markets are somewhat directionless. Yesterday, we saw a bounce from the average and a close at a three-day high, but we still couldn’t break past the highs of the previous two days. As I’ve mentioned before, the first signal that an uptrend might be possible would be to take out at least a two-day high.
Over the last four sessions, we’ve failed to break past 24,400. We’re currently in a flag-like formation, and if we break down below this flag, more downside could be in store. However, if we move above 24,400, the gap is likely to be filled, which would confirm an upside. Until then, the market remains undecided. Below this candle, the real weakness would begin, potentially triggering another wave of panic. Nifty closed down 0.74%, indicating a weak and undecided market.
Nifty Next 50
Nifty Junior also presented a weak outlook today. It recovered to the 40-day moving average, which is a significant level, but retraced from there. Until it moves above the 40-day moving average, this index isn’t going anywhere. We’re in a consolidation phase, with the last two sessions inside days of a big candle down. Typically, when you see a series of inside days, a big move often follows. Whether this move will be upward or if we’ll retest 70,000 remains to be seen. Nifty Junior was down 0.79%.
Nifty Mid and Small Cap
The good news today is that mid-caps and small-caps didn’t participate as much in the downside as large caps. Mid-caps dropped by only 0.35%, and the key support level, or Lakshman Rekha, is holding.
Small-caps also respected their moving average as the Lakshman Rekha. Small-caps ended down by 0.28%, and the critical level for small-caps is 16,800. Today’s price action in mid-caps and small-caps was relatively strong compared to the broader market.
Nifty Bank Overview
Bank Nifty remained flat, which is actually good news given the RBI’s decision to keep rates unchanged. While there was some disappointment, Bank Nifty had likely already discounted this outcome. It ended the day slightly up by 0.08%.
Nifty Heatmap
Today’s heat map doesn’t show much green. Tata Motors gained 1.6%, along with HDFC Life, SBI Life, HDFC Bank, Bharti Airtel, Sun Pharma, and Cipla. Dr. Reddy’s also saw marginal gains. However, power sector stocks like NTPC and Power Grid were major losers. IT stocks took a significant hit, with Infosys, HCL Tech, and Wipro all down. Energy and oil & gas stocks also declined, including Reliance, ONGC, Coal India, and BPCL. Steel and cement stocks like Grasim, Ultratech, Tata Steel, and JSW also fell. Other stocks, like Asian Paints, L&T, and LT, were mildly down, with Adani stocks also facing declines.
In the Nifty Next 50 heat map, there was some more green. Trent, ICICI General Insurance, ICICI Prudential, LIC, Motherson, ABB, and Pidilite held their ground. On the downside, Jindal Steel, Shree Cement, Vedanta, Tata Power, Adani, GAIL, Godrej CP, DLF, HAL, Havells, and Bosch lost ground. Overall, it was a mixed bag with more red than green, reflecting the broader market sentiment.
Sectoral Overview
Sectorally, most trends were negative. IT led the decline, down 1.9%, possibly reflecting fears of a further downturn in US markets. Metals and commodities also fell by 1.7%. Energy and public sector enterprise (PSE) stocks declined as well. PSE stock results, like RVNL’s, are coming out, but these aren’t impressing the market as these stocks are being priced for future developments five years down the road. Today’s results didn’t match expectations, leading to disappointment across the board. Real estate stocks, which saw a bump yesterday due to changes in taxation, couldn’t sustain the rally and fell by 1.2%. PSU banks, which were up yesterday, also fell by 0.8%. Nifty overall was down by 0.7%, indicating weak and cautious sentiment. To rekindle optimism, we need a few positive sessions and to break past two or three-day highs to regain momentum.
Sectors of the Day
Nifty Pharma Index
Pharma stocks performed well today, closing at an all-time high, which is phenomenal. Typically, in weaker markets, money starts moving towards defensive stocks, like pharma. The pharma index was up 0.35%, though it lost some of the ground it gained today. Over the past two sessions, pharma has shown considerable strength.
Stocks of the Day
Symphony
Symphony was in the spotlight today. We discussed this stock a day or two ago, and it surged almost 10% today. The company announced a buyback, which is driving the stock’s recent performance. Symphony hasn’t done much since 2021, but three years later, the buyback announcement has sparked renewed interest. This stock has been consolidating since 2015. Between 2013 and 2015, it went from around Rs. 100 to Rs. 1,100, an eleven-fold increase in two years. Such a dramatic rise led to a lot of enthusiasm, and many people likely bought at the peak. It has taken nine years for the weaker hands to get out and the stock to consolidate. Now, the next move seems to be starting again.
Story of the Day : Should the RBI have cut rates?
Now, let’s return to the main topic of the day: Should the RBI have cut rates? This is just my opinion and could be right or wrong, but let’s analyze what the RBI did. They made some good announcements during the meeting.
The MPC decided to keep rates unchanged, projecting inflation at 4.5% and 4.4% for FY 26. For Q2, inflation has been hiked to 4.4% from an earlier estimate of 3.8%. Q3’s projection is 4.7%. The RBI aims to bring inflation back to its 4% target, which is why they didn’t cut rates this time.
However, if we look at the US 10-year yield and the Indian 10-year yield, the US yield rose quickly from 0.5% to 5% in two to three years but is now dropping rapidly. While the Fed hasn’t cut rates, the market has already priced in a lower interest rate, with the yield dropping from 5% to 4%, and now down to 3.9%. The market seems to be leading the Fed, indicating that interest rates are likely coming down. The Fed has also hinted at possible rate cuts in their September meeting, with another cut potentially following.
India’s 10-year yield peaked much earlier, at around 7.6% in mid-2022. Since then, we’ve been in a range between 7% and 7.5%, and we’re now at the lower end of that range, around 6.8%. The Indian market isn’t as forward-looking in terms of interest rates as the US market. I believe the RBI is also taking cues from market moves, which is why they didn’t see much downside risk for Indian interest rates at this point.
My personal view is that the RBI missed an opportunity to signal the end of the rate hike cycle by cutting rates, especially since the US is likely to cut rates in September. The RBI could have preempted this, but they chose to play it safe.
On a positive note, the RBI maintained the real GDP growth forecast for FY 25 at 7.2%, which is robust given the global environment and geopolitical challenges. With an expected 4.5% inflation, we’re looking at a nominal growth rate of around 12% for FY 25, which is quite strong.
Other Announcements by RBI:
The RBI also made several other important announcements. One notable move was increasing the UPI transaction limit for tax payments from Rs. 1 lakh to Rs. 5 lakh, which should encourage more people to use UPI for tax payments. Another significant change is the decision to speed up the clearance of checks to just a few hours instead of the current few days. However, I’m skeptical about how much this will change in practice, given my recent experience with RTGS, which took a couple of hours to process despite being an urgent transfer method. The inefficiency in some areas of the Indian banking system persists, as many of the people running it are not operating
