December 19th was expected to be a day of market mayhem following the sharp fall in the US markets the previous night, triggered by the Fed’s rate cut. A lot of speculation suggested that Indian markets could experience a bloodbath, but my sense is that it wasn’t as bad as feared. Yes, the market did gap down at the open, but it stabilized throughout the day. We’ll dive into today’s market performance and discuss how the Fed’s hawkish stance has affected global markets, including India. There are, however, some positives to take from this situation.

Where is the market headed?

Market Overview

Let’s first take a look at the Nifty. The index came down to an important support level around 23,870 and remained there throughout the day. The candlestick for the day was very short, indicating that the open, close, high, and low all remained within a narrow range. After the gap down, the market didn’t continue to fall but instead stabilized. The 200-day moving average (DMA) for the Nifty50 index is also near this level, which may have acted as a support point for the market.

The short-term trend has certainly turned down, and it’s clear that the rally we saw over the past four weeks has ended. We may need to build a base at this level, or potentially at a deeper point. If the current trend continues, we could see the Nifty fall further to around 21,300 over the next three months. However, it’s hard to predict the exact depth of this decline. For now, the long-term trend seems flat, as we’ve been at roughly the same levels for the past six months, moving up and down in cycles.

Nifty ended down 1% for the day, which, considering the market conditions, wasn’t as bad as many had expected.

Nifty Next 50

Nifty Next 50 opened near the 70,000 mark and then climbed back to 70,600, though it still ended the day down by 0.88%. There was some recovery, though the short-term trend for this index is also down.

Nifty Mid and Small Cap

Mid-cap stocks showed impressive resilience, losing only 0.24% on the day, which is reassuring. These stocks tend to be more vulnerable to market fear, but this time, large-cap stocks were hit harder than mid and small caps. Small-cap stocks ended the day down 0.34%, and both mid and small-cap indices saw recoveries from their opening lows. This suggests that the market still looks decent for mid and small-cap stocks, even though the short-term trend remains negative.

Nifty Bank Overview

The Bank Nifty opened lower and ended the day with a 1.08% loss, showing a similar pattern to the Nifty with a narrow trading range.

Advanced Declined Ratio Trends

The advance-decline ratio for the day was 165 advances to 334 declines, which is skewed towards declines but not extremely so. While the overall market was bearish, the declines were not overwhelming.

Nifty Heatmap

Stocks like HDFC Bank, ICICI Bank, TCS, Infosys, Reliance, JSW Steel, and Asian Paints were hammered down by 1-3%. On the flip side, defensive stocks, particularly in the Pharma sector, showed some strength. Stocks like Cipla, Dr. Reddy’s, and Sun Pharma performed well, with pharma leading the way. This was also reflected in the Nifty Next 50, where pharma stocks like Torrent Pharma, Zydus Lifesciences, and Divis Labs showed positive movement, while stocks like LTIMindtree, Pidilite, Hindustan Aeronautics, and Adani Green experienced steep declines.

Adani stocks have been on a downward trend almost every day since the crisis, with many stocks losing more than half of their gains from the bottom. Geo Finance also saw significant losses, down 3.5%.

Sectoral Overview

Sectors of the Day

Nifty Pharma Index

On a more positive note, the Pharma sector was a standout performer, up by 1.7%, and was one of the few sectors to remain in the green.

Stock of the Day

Kfin Technologies

The stock of the day is Kfin Technologies, which was up by 7.5% today, despite the broader market’s weakness. This is particularly impressive considering the downturn in the market and the challenges faced by many other sectors. Kfin Tech has shown remarkable performance, rising from ₹260 in April last year to ₹1,429 in just about 21 months — a staggering increase of over 450%.

This stock has been one of the standout performers, and it’s been part of several momentum portfolios. It’s noteworthy that this sharp rise has occurred even as other IT stocks are facing difficulties, indicating the strength of Kfin Technologies in the current market environment. Given its strong momentum, it’s worth keeping an eye on how this stock continues to perform moving forward.

Story of the Day

Global Markets and the Fed’s Stance

The US markets have been under pressure due to the Fed’s hawkish stance. The S&P 500 collapsed after Fed Chair Jerome Powell’s comments about the rate cut. The Fed cut rates by 25 basis points as expected, but the market’s reaction was largely due to Powell’s more hawkish outlook for the future. The market had anticipated four rate cuts in 2024, but Powell signaled only two, indicating that inflation remains a concern and economic conditions are not as favorable as expected. This shift in expectations sent the S&P 500 down by nearly 3% and Nasdaq down by 3.6% the day after Powell’s announcement.

The market’s negative reaction was a classic case of “sell the news,” where the initial rate cut was already priced in, but the forward guidance was more hawkish than expected. The market now expects fewer cuts, which suggests a more cautious economic outlook. This has placed pressure on the US stock market, and the global markets are feeling the impact, including Indian stocks.

Impact on the US Dollar and the Rupee

The Fed’s decision to cut rates has led to an interesting dynamic with the US dollar. Despite the rate cut, the US dollar has been rising sharply, reaching levels near 108. This is not good news for emerging markets, as a stronger dollar typically leads to capital outflows from non-US assets. The Indian rupee also took a hit, reaching a new low of 85.05, which adds further pressure on emerging market currencies.

A weaker rupee is concerning for foreign investors, as it reduces the returns they get when converting their investments back into their home currency. This could discourage foreign capital inflows into India, especially if the rupee continues to depreciate. The outlook for the rupee is uncertain, with experts predicting that the depreciation could continue in the short term.

The weak rupee is also problematic for sectors reliant on imports, such as oil, gas, chemicals, and electronics. A depreciating rupee increases the cost of these imports, which could impact profit margins and trade deficits. Additionally, sectors like IT and metals, which have significant exposure to the US dollar, could face challenges due to the stronger dollar. IT firms earning a large portion of their revenues from the US may see lower profits due to the rupee’s depreciation

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