Where is the market headed?
An interesting debate unfolded recently on X regarding the charts of four of the most popular, good-quality, and highly vouched-for Indian stocks. The chart of Hindustan Unilever shows that the stock has not gone anywhere in the last six years. The second chart, HDFC Bank, also has not performed, with its price sitting exactly where it was about four to five years back. ITC, which was doing well until last year, is now back at the same price point seen in 2022. Finally, Asian Paints has been a clear underperformer for almost the last five years. On average, some of these super stocks, recognized as the best in India, are languishing at five-year-old price points.
There are basically two theses circulating to explain this phenomenon. From a fundamental perspective, the first thesis suggests these stocks were overbought, overrun, and overvalued, and they are now going through a necessary time correction.
The second thesis suggests that the Indian economy is in bad shape, regardless of what numbers the government may be claiming, and these stocks are mirroring a grim situation going forward. From a momentum or trend perspective, liquidity is not flowing into these stocks, meaning they will not be part of any trend or momentum portfolios. It is certainly concerning that the top companies in India are not attracting liquidity, even if it means higher valuation. The sheer fact that new liquidity is not coming into them and foreign investors are continuously pulling out is a notable concern.
Market Overview
Diving into the markets on this 1st of June, one would have thought that the start of a new month would bring some green ticks on the charts, but that was not to be. President Trump and the Iranian regime have decided to rethink how they are going to negotiate.
Whatever ceasefire or final agreement they were previously coming closer to has now been washed out, and that entire exercise needs to start once again. In light of this development, crude oil has gone up, and the sword hangs over the markets once more going forward.
Looking at the charts after keeping the standard disclaimer in mind, Nifty closed down 0.70% today. Recalling Friday, there was an MSCI rejig in the last half an hour that caused a very sharp fall, which people initially blamed for the drop. It seems now that this was not the only reason. Perhaps the breaking down of geopolitical talks was already getting baked in on Friday.
Additionally, a new base is getting created for the IIP numbers, which will be released in the evening today, causing some anticipation. Nifty is now in a very precarious position where a gap exists and the pivot point bottom is nearing. A break of this level will cause Nifty to retest the bottom seen in April, which is a worrying part on the Nifty front.
Broader Market Indices
Other indices moved down rapidly today as well, with Nifty Junior dropping 1.6%, Mid-caps down 1.3%, Small-caps down 0.8%, and Nifty Bank falling 1.1%. The small-cap universe is falling the least, perhaps because Foreign Institutional Investors have the least amount of investments in that space, whereas Nifty, Nifty Next, and Nifty Bank hold the most FII exposure.
GOLD
Gold is also falling, with the price sitting at 15,795 per gram. Following India, Malaysia has now put duties on gold imports. If gold curbs come up like this in multiple countries, gold demand will certainly take a hit, which is causing the price to come off. However, the broader context must be kept in mind, as the price went up 65% in just the last one year. Some periods of consolidation and correction are very natural and should not be viewed as weakness. This is part and parcel of the move, and the long-term outlook still remains very positive.
Crude Oil
Meanwhile, crude oil moved up from 89 to roughly 94 for India on the back of the latest geopolitical developments, acting as a red mark or a headwind for the market.
Heat Maps
There is a concerning trend in the consumption space, as Hindustan Unilever, ITC, Nestle, and Tata Consumer are dropping very rapidly. If consumption demand is in some kind of jeopardy, the overall markets are in trouble. What actually saved the markets today was the IT sector.
What was once written off has started to become the wild horse of the market, performing reasonably well on most days when the markets are down. Coal India, JSW Steel, Tata Steel, and Hindalco also did well today. Conversely, most of the banking and finance space was in the red, leaving very few green spots in the market.
Most of the damage happened in capital goods stocks, which had run up quite a bit recently and faced a big correction. Similar corrections were seen in finance companies, Adani Group stocks, and certain commodity and cement stocks. Hardlly any major green could be seen anywhere, except for LTIM, which managed a 3% gain.
Movers Of The Day
The mover of the day segment belongs to PTC Industries. Goldman Sachs is calling for a 60% upside based on Q4 earnings, causing the stock to move up sharply from a close of around 16,000 on Friday to almost 19,000 today, making it a big winner.
On the downside, JP Power has collapsed after the upward move that occurred in the last two sessions. People were contemplating the rumored Adani takeover of JP Power as a new lease of life, but financial challenges remain, and it will take time for the stock to consolidate. This entire up-move has been completely demolished by two days of downward movement.
Sectoral Overview
In sectoral trends, only a couple of sectors bucked the negative trend. IT gained 2.6%, media rose 1.7%, and metals climbed 0.49%. Otherwise, all other sectors were down, with FMCG getting hit the worst. In the last one month, FMCG is down 5%, and over the last year, it has dropped 14%, making it one of the top losers alongside real estate, tourism, and IT.
Today, MNC stocks, defense, capital markets, PSU banks, real estate, and autos all lost ground between 1.5% and 2%, signaling a very broad-based sell-off.
Sector of the Day
Nifty IT Index
The specific IT stocks that caused the index to go up include Persistent Systems, Tech Mahindra, LTIM, Infosys, and Coforge.
U.S. Market Updates
Looking at the previous session in the US markets, there was another blockbuster move for several tech stocks. Workday, Datadog, Palo Alto Networks, Palantir Technologies, and CrowdStrike Holdings all hit gains between 9% and 12%. The Nasdaq closed up 0.3% and the Dow Jones rose 0.7%, though the small-cap segment and the broader US market fell by 0.6%.
On the Nasdaq 100 heat map, Microsoft moved up very rapidly after a long time. Micron Technology has also been rising very rapidly, alongside gains in Qualcomm, ARM, Broadcom, and Adobe. Meanwhile, Costco, Walmart, Amazon, Tesla, Google, and Nvidia moved down.
Tweet Of The Day
For the Tweet of the Day segment, an interesting data piece from Tavi Costa focuses on silver prices and global production. Costa argues that over the last 10 years, global silver production, represented by blue bars in million ounces, has gone completely stagnant. There is no growth in silver production because no new mines are being started, and old mines have exhausted their capacity to increase output.
This stagnation on the supply side is occurring while the demand side continues to rise, driven by silver usage in solar cells, EV batteries, and other technologies. Therefore, the recent price move, which has already corrected substantially, is not a flash in the pan. A new mine takes 15 years from planning to actual production, meaning this structural move is driven by demand outstripping supply rather than a speculative bubble.
While it is difficult to say exactly where silver will bottom as it currently trades near 75, prices cannot remain stagnant if production stays flat against exponentially increasing demand. This serves as a reality check for the future of silver prices.
