Where is the market headed?
IT stocks are currently cause for concern as a meltdown is unfolding, led by major players like Infosys and TCS. More than 1 lakh crore of market cap was wiped out across these stocks combined. The long-term chart of the IT sector is not looking very encouraging. While there was a point at the start of March where a credible pullback seemed to be building, that effort was smashed down, and the sector is now approaching a multi-level, multi-year support line very soon. If that breaks, hope will fade, although chaos is already present.
This situation is essentially on the back of very poor guidance by most IT companies and the AI onslaught on tech spending toward software development and services. This represents an existential crisis for the IT industry. While some winners who pivot will emerge, it seems that unless these big companies turn their ship around very quickly, this is going to be a long, painful journey.
Market Overview
Market charts, which looked very nice until three days back, have now turned down. A gap created previously was filled today. It was not a complete washout day, but there were significant losses of 1.14%. The best hope is that the market does not break into this gap; otherwise, it will head below 23,000. Hopefully, some turn will be seen here. The war in the Middle East does not seem to be ending, with new attacks on Lebanon.
There is no breakthrough right now, though whenever it happens, it will occur in a moment. While the market is trying to discount some thawing of that situation, today, the market’s back was broken, and a very short-term downtrend has started, aided by the IT meltdown.
Nifty Next 50
Nifty Junior is down 0.75%, showing a good recovery from its daily bottom, but the short-term trend has gone negative.
Nifty Mid and Small Cap
Mid-caps are losing 1%, small caps are down 1.07%, and Nifty Bank is down 0.38%, which is not so bad.
Bank Nifty
GOLD
Gold is absolutely flat, not reacting at all at minus 0.05%.
Crude Oil
Crude oil is also down today, by 4.77%, after yesterday’s flurry, but the market is not interested in the crude oil fall right now; it wants more concrete evidence that something good is happening.
Advance Decline Ratio
The advance-decline ratio after the first half an hour was almost flat, with 394 declines to 105 advances.
Heat Maps
Most stocks were down, and the screen was washed in red, with the most red visible in the IT space and some in the pharma and banking sectors.
Nifty Next 50 saw some green in Adani and Adani Ensol, but there were significant losses in capital goods that were running so far, as ABB, CG Power, and Solar Industries all lost ground. LTIM was down 5.5%, Godrej CP was down 4.6%, Hyundai was down 3.2%, and Vedanta, which is going into a demerger, was not able to hold, ending at minus 2%.
Movers Of The Day
In the Movers of the Day segment, UTI AMC was down 10.6% as profits plunged 73%, leading to the stock being smashed down. Infosys is the leader of the weak stocks today, dropping sharply after giving guidance for next year of only 2% to 3%. The question arises of who is going to pay this kind of multiple on the stock. Liquidity has been getting out of IT stocks for a long time; if investors were following liquidity, they would not have needed to worry about earnings or guidance, as just following liquidity would have kept them away from IT stocks. None of the company strategies have had any IT stocks for a long period, which is reasonable as per the momentum strategy, which dictates that if there is no strength, there is no chance of that stock being in the portfolio.
Sectoral Overview
Sectoral trends show one large candle down, with minus 5.29% on IT. For the month gone by, it is still not so bad at minus 4%, but if we look at one year, it is down 19%. Other sectors are also affected; space tourism is down 20%, FMCG is down 11%, and real estate is down 12%. IT is down 20% over six months and 25% over three months, which is looking really bad. The chart is tentatively at a point where it can find support, but if it doesn’t, there will be a very severe downtrend.
Sector of the Day
Nifty IT Index
Infosys, Persistent, HCL Tech, Coforge, and LTIM are all losing ground.
U.S. Market
The previous session on the US markets was very dramatic as well. ServiceNow lost 18%, Thermo Fisher 9%, Salesforce 8.69%, IBM 8%, and Palantir 7%. The US market is starting to look a bit shaky after making new highs, with a 0.4% cut on the indices and 0.6% on the Nasdaq, but some stocks are falling like nine pins. Some of these stocks could have been part of the weekend investing US stock strategy.
The Nasdaq 100 heat map is pretty red. Microsoft is cutting some 9,000 jobs, having sent a mail during the lunch hour to employees saying that from tomorrow they need not come. Palantir is down 7% and Tesla is down 3.5%. It is a brutal world out there, and those with a secure job are very lucky.
Tweet Of The Day
In the tweet of the day segment, a tweet by Kobesi Letter shows the distribution of all gold above ground. Of all the gold ever mined, 97,000 tons sit in jewelry that is probably never coming for sale and is basically replaced by another, so that is out of supply. 38,666 tons are with central banks who rarely sell and are actually accumulating at 1,000 tons a year, so that supply is also out. The investment supply is 51,000 tons, which can fluctuate, and there is other industrial usage.
In the overall scheme of things, more than 50% or 60% of the known above-ground gold is never coming to the market. The supply is actually shrinking, and no new mines are being discovered, as a mine takes 15 to 20 years to come into production after discovery. For the last three years, there have been zero discoveries in gold mines across the world. While gold supply grows by 1.5% to 2% from existing mines, investment and central bank demand continue to be robust. This is a shrinking supply case with increasing demand, and there is no reason why the gold price should really stop at this point for long periods.
Investors should consider why central banks hold 38,000 tons of gold and what they plan to do with it. If the people who create money are feeling insecure and are accumulating gold, it raises the question of why the rest of the world shouldn’t do the same.
