Where is the market headed?
The markets are currently in a bit of turmoil, and this month has not started well. The rupee has breached the 90 mark, which has caused some fear in the market regarding the falling currency. Although reassuring narratives have emerged—the Niti Aayog has stated that a falling currency is not a problem, and the chief economic advisor expects the rupee to recover next year—the market does not seem to fully believe this.
What typically happens is that once the USD/INR market begins moving in one direction, it tends to continue. Our study indicates that the average move in the last eight or nine instances has been about 18% to 20%. Since we have currently moved approximately 8%, there is a potential for the rupee to head towards 100 before settling around 94 or 95. This possibility is now open, especially with the government openly suggesting that a falling rupee is acceptable. This might be a trade tactic where they are attempting to depreciate the rupee to mitigate the impact of the export tariff.
Market Overview
This marks the fifth day that the Nifty has failed to post a gain after opening higher. However, today there was a noticeable attempt at a pullback, with the Nifty recovering approximately 100 points from its low to close where it did. We have now closed once again below the 26,000 mark. This level, along with the range between 25,700 and 26,700, seems to be a current sweet spot where the market usually finds support, as it has done over the last month.
Nifty Next 50
Nifty Junior also painted a fairly red picture, down by 1% today.
Nifty Mid and Small Cap
Mid-caps were also down 0.89%, indicating there was little space to hide in the market today. Small caps found some support in the rough range of 16,500 to 16,700, and despite a pullback, still lost 0.44%.
Bank Nifty
Nifty Bank pulled back the most and actually ended in the green, though some of its components were badly damaged.
GOLD
Gold remained steady, up 0.25% at 12,900, and Silver was also steady at 1,78,000.
SILVER
Advance Decline Ratio
The advance-decline trend, for the third or fourth day running, showed declines significantly outnumbering advances (356 declines to 144 advances). The only positive was that the number of declines did not increase further throughout the day.
Heat Maps
The Nifty heatmap showed very specific areas of green. IT stocks such as Infosys, TCS, Wipro, and HCL Tech were in the green. In the banking space, private banks were up while PSU banks were hit hard. SBI was down 1.68%, whereas HDFC, ICICI, Axis, and Kotak Bank were up. The rest of the market was generally down.
The Nifty Next 50 was also deeply red, with PSU banks bearing the brunt of the selling—Bank of Baroda, PNB, and Canara Bank were all down 3% to 4%. Gas Authority, JSW Steel, Solar Industries, HAL, DMart, Motherson Sumi Systems, LIC, Vedanta, and Naukri were all down. Hindustan Zinc, Divis Lab, IOC, Pidilite, Hyundai, CG Power, and Bajaj Holdings were some of the stocks that bucked the trend for the day.
Mover Of The Day
In the ‘Mover of the Day’ segment, Hikal surged 9% with significant trading activity. This suggests that some news or announcement is likely forthcoming, as other pharma stocks underperformed.
Sectoral Overview
Sectoral trends were dominated by losses. Nifty PSU Bank was down 3%. This is a significant move for a sector that had been leading, with its one-year gain now reduced to 18%. The pressure on PSU banks comes after the rumor about allowing FDI up to 50% was denied, which has caused the segment’s performance to flatten over the last month. Defense stocks and Capital Market stocks were also down 1.8%.
CPSCs, Nifty Auto, and Nifty PSE were all down 1.2%, signaling significant damage in parts of the market. There were minor gains for Nifty IT (0.76%) and Nifty Bank Private (0.57%), suggesting a rotation of money from PSU banks into private banks today.
There were also small gains in Nifty Media and Nifty Financial Services. The slump in PSU banks like Indian Bank, PNB, Canara Bank, Punjab & Sind Bank, and Bank of India follows a substantial run-up over the last two to three months, indicating some mean reversion is likely occurring.
Sector of the Day
Nifty PSU Bank Index
U.S. Market
The US markets had a mixed session. The broader market was down 0.2%, but the Russell 2000 and NASDAQ 100 were racing up at 0.6%. The Dow Jones was up 0.4%, and the S&P 500 was up 0.2%.
Individual stock performance was strong for Boeing Co., which flew up 10%, Intel up another 8%, Booking Holdings up 5%, and Texas Instruments and Caterpillar also moving higher. Some of these stocks may be part of the Weekend Investing US stock strategy, but please note these are not recommendations.
Tweet Of The Day
In the ‘Tweets of the Day’ segment, the Japanese 30-year yield crossed 3.4%. This is a massive increase considering it was at 0.5% not long ago—a sevenfold rise. For anyone with rolling debt or a flexible-rate home loan, this surge in the base rate will likely lead to defaults and other issues, as their EMIs could increase many times over.
Furthermore, investors who borrowed in the low-cost yen for years to invest in higher-yielding assets, like US bonds at 3%, now see the Japanese yield itself at 3.4%. This eliminates the incentive to invest elsewhere, prompting them to sell their US bonds and reinvest in Japanese treasury bonds.
Another chart from Augur Infinity highlights that major economies—China, the US, Japan, and European markets—are all running with high debt. Japan’s debt-to-GDP is 215%, the US is 125%, European debt is nearly 100%, and China’s is 93%. Over the last 10 years, these major economies have allowed their debt to rise much faster than their GDP.
This is unsustainable because as debt increases, the cost of funding rises. Governments must find a way to pay for these borrowings, which is limited by how much more they can tax. The alternative is to “print like mad,” allowing new dollars or yen to pay for old loans, leading to inflation in these economies. We are certainly approaching a point where this will cause a major debacle in global markets, if not now, then in a few years.
