We’re seeing some softness in the market today, following the Hindenburg situation that arose yesterday. The market recovered fully yesterday but has given up some ground today, looking a bit soft ahead of the Independence Day break.

This week, while the markets opened pretty much on flat ground, they moved down not only in large caps but also in mid-caps and small caps. The entire market seems to have gone into a slow grind mode, with no major moves in any sector. It feels like a profit-taking scenario is emerging.

The development in the market right now is that the MSCI index is getting rejigged ahead of us. Some stocks have moved. We’ll discuss some of these stocks, what’s coming in, what’s going out, and how such rejigs impact the market.

Market Overview

As I mentioned, there’s been a gradual slip in the market. We’ve given up the average that we were sticking to. A wedge had formed and that also got broken—a flag-like formation. It may so happen that we now go towards either the bottom of this first candle here, and if that gets broken, towards the election day high, which are important support points. Around 23,300 is a potential trigger post this flag break. It may so happen that in the next session, this move could get nullified, but as of now, it seems like we are headed lower. The market is slightly coming off—down by 0.85% on the Nifty.

Nifty Next 50

The Nifty Junior is also coming back exactly from that average after bouncing into it, down by 1.14% again. The key level here will be around 71,000, below which the market starts to get weaker—down 1.1% there.

Nifty Mid and Small Cap

Mid-caps also had significant intraday play today, with a wider candle towards the lower end, down 0.77% on mid-caps, again coming off towards the support of 20,500. Small caps had an almost bearish engulfing candle, down 1.12% to 1.23%. So, the underlying current seems to have ebbed today, with a definite feeling of some kind of lethargic activity in the market. Perhaps the FI sell was a big number today—we will come to know by evening, but the buoyancy of the market was certainly missing today.

Nifty Bank Overview

The Bank Nifty has also broken down from the wedge and is almost at recent lows, below which further downside will open up for Bank Nifty. So, Bank Nifty is the segment leading the market down by 1.48%. This, on a day when inflation was announced to be much lower than expected, which would have meant that an interest rate cut could be in the offing in the near future.

Nifty Heatmap

Today’s heatmap: There was virtually no green, with Titan managing a 1.89% gain, but HDFC Bank led the markets down with a 3.43% drop. This is linked to the rejig that I mentioned earlier. BPCL was also down 3.5%, ONGC down 1.5%, and several other large-cap names, including State Bank at -1.85%, LIC down -4%, DLF, PFC, REC, Canara Bank, Chola Finance, Dabur, IOC, and Zydus Life (despite great results), all saw declines.

Motherson was down 3.99% after beating the results. It seems that most stocks have run up beyond expected results, which is why even on good results, stocks are not holding their position.

Sectoral Overview

Weakness is seen across the market, with sectoral indices also not wildly down, but very consistently across sectors, down between 0.6% to 1.6%. Only IT, pharma, and FMCG—the defensives—were the least hit, while metals, PSU banks, public sector enterprise stocks, and private banks were all down significantly more than 1%.

Sectors of the Day

Nifty PSU Index

The PSU banks chart looks probably the worst of most sectors, where it not only did not cross the election day high but is now veering towards the election day lows. It has already broken down from the recent lows, so this looks like a very distributive kind of chart, and it will be difficult for it to turn around and go up very rapidly.

Stocks of the Day

Triven Turbine

Triveni Turbine was one stock that really bucked the trend today, up 12.33%. There was talk about a lot of ethanol blending by 2025-2026, and several stocks in that space were doing really well. Triveni Turbine also saw almost a 32% increase over the previous month, so it has done a remarkable job in the last few years, with a great bounce on a weak day for that stock.

Story of the Day :

Some expected actions from MSCI—this is sourced from Twitter, with posts from Swamit Sarkar, ET, and CNBC—include stocks likely to be included in the rejig by the end of August: Dixon, Vodafone Idea, Oil India, Zydus Life, RVNL, Prestige, Oracle Finance. These stocks are likely to see specific flows, such as HDFC Bank with a weight increase and a flow of $1.8 billion. Bharti Airtel and Coal India are expected to be excluded from MSCI, along with Bandhan Bank, leading to significant outflows. Reliance, Maruti, Infosys, and L&T might see some weight downgrades.

These are all potential moves, and the markets are adjusting accordingly as we approach the date. Stocks that are getting included, such as Dixon, Zydus, RVNL, Prestige, have already seen significant moves. Dixon, for instance, has gone from nearly 6,000 to almost 12,000. Oil India has moved from nearly 200 to Rs. 608. Zydus Life, despite its huge run-up, has fallen in the last two sessions, maybe expecting a higher inclusion percentage, but it went from 680 to almost 1,200 rupees. RVNL has been rallying for months, and yesterday saw a huge candle up despite poor recent results. Prestige has been rising, although it has corrected to some extent in the last month and a half. Today, it was in the green on this news. OFSS has also been rising dramatically in the last four or five sessions and, despite weak markets today, has gone up.

As we get closer to the end of August, we’re seeing that stocks getting included are already receiving the flows, and people are readjusting their portfolios accordingly. Bandhan Bank, on the other hand, has been dropping sharply since the start of 2024, with a small jump here, but in the last few sessions, it’s been coming off very rapidly, probably because people are selling off before MSCI officially excludes it from the index.

Even HDFC Bank, despite its weightage going up, has seen a sharp decline because the market was expecting the entire chunk to come in one go, but it may come in two tranches—August and November. This could be why HDFC tanked so hard, as people had already built positions in anticipation of a larger move.

The point I’m trying to make is that whatever we come to know about these announcements is often just for retail consumption. The big players already know this is happening for a long period, and when the news is released to retail or the media, positions have likely already been built. Some people may face disappointment, while others may find an advantage due to this.

HDFC Bank vs. Nifty has been extremely poor over the last few years, and there was a lot of expectation built around more flows, but that too has been dashed. MSCI India vs. MSCI Emerging Markets is a very interesting chart, where from 2018 until mid-2021, both were together, but then MSCI India took off on a completely different trajectory, while the MSCI Emerging Markets fund has remained flat, primarily due to China’s weight.

India’s weight in emerging market funds has also increased from single digits pre-COVID to higher double digits now, causing good flows towards the India component of the emerging market fund. So, the question remains: Can HDFC Bank deliver from here? Can these MSCI stocks sustain further gains, or has the move already happened? We don’t know for sure, and we’ll need to follow trends to see where they go. HDFC Bank has been a disappointment for many who built positions, but this may present an opportunity for long-term investors who favor HDFC Bank.