Where is the market headed?
The market experienced a very sharp sell-off in the final half an hour of the session today, driven primarily by two distinct factors. The first major catalyst was the MSCI rejig. Because the MSCI index changes every few months, the subsequent rebalance triggers a significant amount of fund flow in and out of various stocks, with an estimated one billion dollars moving across different equities today. A clear list emerged showing where most of the weights were cut down, contrasted against a list where weights were ramped up.
Large institutions that use the MSCI index as their benchmark are forced to shuffle and rebalance their portfolios in accordance with these index adjustments. This index change impacts most foreign portfolio investors, which explains why such sharp market moves occurred precisely at this time. This structural adjustment stands as a primary reason for the second-half market decline.
In contrast, the first half of the trading session was actually very surprising to witness. The morning brought decent news that oil prices had corrected further, alongside reports that the United States and Iran have once again decided to renegotiate many parts of their relationship and maintain a ceasefire for the next couple of months. While conditions looked reasonably all right early on, the market was hit by a meteorological department alert predicting a 60% probability of deficient rainfall from June to September. This alert caused the initial damage for the day.
As the saying goes, when it rains, it pours. Just as the market was about to escape a problem originating from the war zone, another major issue emerged to hang like a sword over everyone’s head. This concern will continue to loom until proper rainfall is recorded, or until the year is completely lost to poor rains, proving that there is not much luck happening this year. While many stocks were hammered today, a few green shoots did appear.
Market Overview
This session marked Friday, 29th May, bringing a sense of relief to see the month of May finally draw to a close. The old market adage suggests to sell in May and go away, and this time around, the phrase held reasonably true as avoiding the markets would have been a viable strategy. As a mandatory disclaimer, readers are urged to read fully before moving forward with any information. Looking back, the market simply lost ground throughout the month of May. Although prices did not really go anywhere for about 50% of the time, today’s downward move has opened the doors for much lower prices ahead.
There is hope that this MSCI adjustment will revert back within a day or two, but the scare surrounding deficient rainfall has the potential to cause significant long-term damage. From a technical perspective, a specific flag pattern is forming on the charts. An imaginary trend line indicates that if this level gets broken, the market would be entirely willing to retest its previous bottom.
Market participants must now wait and see whether prices can overcome this hurdle. Today’s session high of exactly 24,000 now becomes incredibly important, and until that level is taken out, the market could remain weak according to the chart prognosis.
The final numbers revealed a 1.5% drop on the Nifty, leading to a reasonably red outcome across every single part of the market.
Broader Market Indices
Mid-caps fell by 1.4%, the Nifty Next 50 dropped 1.2%, and small-caps showed a bit more resilience by falling less, closing down 0.65%. The Nifty Bank also suffered a decline of 1.12%.
GOLD
Meanwhile, gold remained stable at 15,907, and in dollar terms, it stood at 4520, which is actually not too bad. The rupee also displayed reasonable stability.
Crude Oil
On the commodities front, crude oil is slipping and has now closed at its lowest price since the middle or second week of March, which serves as a good sign. The rhetoric coming from both sides suggests that nobody wants further war right now. While the involved parties are not fully disengaging, they have kept themselves engaged, and nobody is genuinely interested in launching more strikes. It appears they are buying time and trying to negotiate harder, meaning crude oil can probably slip a bit more if this situation remains stable.
Heat Maps
The market heat map ended up completely red. Barring a couple of resilient stocks, big losses were recorded in heavyweights like HDFC Bank, Reliance, and the Bajaj stocks, including Bajaj Finserv and Bajaj Finance. Eicher Motors dropped by 3%, while Tata Motors, Bajaj Auto, and ITC all shed another 2%. ITC has been losing big ground lately, and Hindustan Unilever was down 2% as well.
Consequently, consumption stocks are going to stay directly in the focus of investors following the poor rainfall predictions. Energy stocks also lost ground due to some profit booking, while oil marketing companies, banks, and capital goods stocks all underwent a correction today. Adani Group stocks fell as well, leaving very few places where investors could find safety.
On the positive side, Larsen and Toubro managed a gain of 1.83%.
Movers Of The Day
Looking at the top movers of the day, Supriya Life Sciences jumped an impressive 20% on the back of very strong quarterly earnings, zooming from nearly 500 to 1,000. Some pharma stocks are performing really well right now. Netweb was another winner, gaining 15% across two sessions as it surged from 3,800 to 4,670.
Sectoral Overview
Sectoral trends were overwhelmingly down, with Nifty Oil and Gas, Central PSEs, PSEs, and metals all plummeting by more than 2%. Conversely, the Nifty IT index managed to gain, proving a frequent recent trend where the rest of the market falls on the exact days IT rises.
Sector of the Day
Nifty IT Index
Nifty IT has effectively become the contra trade, and to its credit, the IT chart is looking reasonably stable now.
U.S. Market Updates
Looking over at the US markets from the previous session, investors witnessed another blockbuster day. Extreme Enterprises and Arm Holdings both posted double-digit returns, while Palantir surged by 8% after a long time. Shopify and AppLovin Corporation also closed higher. While trading in the Dow Jones remained flat, the S&P 500 and the Nasdaq both moved up by 0.6% and 0.8% respectively.
The Nasdaq 100 heat map clearly showed that the green performance remains heavily concentrated in the semiconductor and AI stocks corner. Microsoft also added a solid 3.4% today, reflecting the reasonable confidence currently flowing through the US markets. American indices are not wavering in confidence right now; despite having gone up almost 40% in practically no time, the US market is actually thriving very nicely, while our domestic market sits on the completely opposite end of the performance spectrum.
Tweet Of The Day
Highlighting a notable tweet of the day, the CNX IT chart features companies like Coforge, Tech Mahindra, LTIMindtree, Persistent Systems, and Mphasis doing well. The chart indicates a possible inverse head and shoulders pattern forming, though the neckline still needs to break out. If it successfully breaks out, this could serve as a good basing pattern signaling a potential bottom, though it remains too early to make a definitive call on that front.
