Where is the market headed?
The May mutual fund data is officially in, and the way it was narrated across mainstream media certainly caused some jitters in the market. However, a deeper dive into this data is necessary to understand what a true month-on-month comparison looks like.
A lot of television channels were flashing headlines stating that inflows into mutual funds dipped very sharply, but those analyses were comparing the month of May directly against the month of April. April is always a unique month in the year. Every April diverges from the trends that exist leading up to March or following into May, because new financial year allocations are made during this period. A fall from April to May is entirely standard, even when looking back at previous years.
A more appropriate comparison would be looking at May to May data. In that specific comparison, the performance is certainly flattish and even down in some segments. However, it is far from the dramatic downtrend that current media headlines imply. While the total Assets Under Management certainly decreased, that change is largely because the broader markets are down a bit. Heavens have not fallen today.
Market Overview
The markets did fall significantly due to these mutual fund worries, alongside new developments at the war front and a new risk allocation to the fiscal budget by the government and the Reserve Bank of India. This budget risk comes from allowing foreigners and Non-Resident Indians to invest in fixed deposits at rates equivalent to the Indian rupee. An NRI in Dubai, for instance, will now be able to open a fixed deposit in India at around 6.57 percent. The dollar risk and the associated hedge for this setup are borne entirely by the government, or in plain words, by the fiscal deficit. There is always a cost to such hedging, and it could amount to several percentage points of the national reserves.
Perhaps the market is adjusting to this new reality where the government appears somewhat trapped, having to dole out these subsidies to foreign investors to stem the fall in the exchange rate between the US dollar and the Indian rupee. This has created a bit of a sticky situation in the markets, and the markets responded by going down today. Looking at the charts on this Wednesday, the tenth of June, the usual disclaimer applies to fully read all terms before moving forward with this information.
The entire morning gains for the Nifty were completely washed out. The index had reached 23400 in the morning but closed near 23200. Nifty itself was still not too badly impacted for the day, closing at minus 0.12 percent.
Broader Market Indices
However, other indices were smashed down, with mid caps and small caps getting hit especially hard alongside the Nifty. The Nifty Next 50 banks still maintained a bit of the upward move that started yesterday, dropping only 0.17 percent today.
GOLD
Gold, on the other hand, has been smashed down by 2.26 percent. Reports indicate that even Chinese investors have backed out of retail buying for the moment, and Indian demand has collapsed. Global gold demand from retail investors is on a weaker footing, although central banks are continuing to buy the metal.
Gold will likely need to seek a bottom from which it can start rebuilding. This appears to be the end of the intermediate rally that began in 2024, and the market needs to find a floor before rebuilding on the long-term rally once again. Many people are asking if they should sell their gold or if the long-term bull rally is completely over. Nothing of that sort has happened. Gold periodically overshoots its historical returns, just as it did over the last two years, and then reverts to the mean over the next many months and quarters. The same mean reversion is likely to happen now, but the fundamental setup for gold to go even higher remains very strong.
Gold is also waiting for the first Federal Reserve meeting with the new Fed chairman to see what kind of stance he will take and what guidance will be provided for the next year. This anticipation is causing a lot of the very recent weakness in gold prices, leaving it in a very weak trend across the short, mid, and long term.
Crude Oil
Crude oil slipped another 1 percent, still sticking around the 91 to 92 mark but gradually moving down, which serves as good news.
Heat Maps
Several stocks across the energy space, information technology, automobiles, and commodities were all down today. The market offered a slight breather in Fast-Moving Consumer Goods, and the banks continued their attempt to rally a bit. The Nifty Next 50 was completely awash with red.
Notable movements included a drop in the Adani Group, profit-taking on yesterday’s Public Sector Undertaking bank run, and declines in gold-related stocks like Muthoot Finance and Manappuram Finance. Solar Industries and various steel and commodity stocks also crashed. There was truly no place to hide in today’s downward market movement.
Movers Of The Day
In the mover of the day segment, Oil India stood out. Morgan Stanley downgraded the stock, causing Oil India to drop dramatically by 10 percent for the day despite oil prices themselves not moving down.
On the positive side, CarTrade is running up wildly. Over the last three sessions, it jumped from 1900 to 2451, marking a 7.8 percent gain very recently. New-age stocks are experiencing a fresh tailwind.
Whether looking at CarTrade, Nykaa, or perhaps Lenskart, all of these stocks have done slightly better compared to the rest of the market over the recent few weeks.
Sectoral Overview
Sectoral trends showed FMCG up 1 percent after a very long time, which stands out given that its performance over the last month is minus 3.67 percent and the last year sits at minus 13 percent. This movement might just be a dead cat bounce for now, and the next few days will reveal if there is more substance to it. Private banks maintained their gains today, closing at plus 0.72 percent.
Conversely, a huge number of sectors were down between 1 and 2.5 percent. The heaviest losses were seen in Nifty Media, Nifty Energy, Capital Markets, Central Public Sector Enterprises, Real Estate, Metals, Public Sector Enterprises, and Commodities, confirming that there was no place to hide from the heavy selling.
Sector of the Day
Nifty Media Index
Media stocks like Network 18, TIPS, Zee, Prime Focus, and Saregama all came off their highs. The media sector was looking to break out of its current pattern, but it was shot down for now, giving back most of the strong two-day gains achieved three days ago.
U.S. Market Updates
The United States markets are behaving like a total yo-yo these days. Lumentum is down 8 percent, Strategy is down 8 percent, and Marvell, AppLovin Corp, and ARM Holdings all dropped between 6 and 8 percent, while the major indices remained relatively stagnant. The Nasdaq closed down 1 percent, whereas the Russell 2000 ticked up 0.4 percent.
The SpaceX Initial Public Offering is scheduled to launch on Friday with an estimated market capitalization of around 2 trillion dollars. This event is already sucking out, and will continue to suck out, significant liquidity from the market as people sell off other stocks to buy into the IPO. This is a global phenomenon rather than one strictly isolated to the United States, as a significant amount of capital will move out of other assets to participate. SpaceX is not the only major offering on the horizon; Anthropic and OpenAI are other IPOs lined up in the queue. A massive amount of liquidity will be required for these launches, which will pose an issue for the rest of the market until they stabilize.
The heat map on the Nasdaq 100 was extremely red in the previous session, showing that semiconductor, chip-making, and artificial intelligence-oriented stocks were largely down. Apple lost as much as 3.6 percent, reflecting a broader reallocation of resources. Tesla dropped 3 percent, and Microsoft, AMD, Broadcom, and Qualcomm all lost ground. The downward move that began last Friday on the Nasdaq has continued lower after a brief hiatus on Monday. This short-term downward trend may not halt before Friday or before the upcoming Federal Reserve meeting.
Tweet Of The Day
Addressing a tweet shared earlier in the day, a lot of people frequently express a desire to wait on the sidelines for the market to give a clear indication before they start investing. Throughout a journey of almost 30 years in the market, a period where the market gives a perfectly clear signal that it is entirely safe to invest never actually arrives in reality. There is never a time when the market is free of problems.
There are certainly periods when the market is extremely disturbed, but those moments are precisely when investors get better prices. Conversely, there are periods when it is less disturbed, meaning investors might not get the best entry prices. It is impossible to predict these cycles. One cannot predict whether the market at 23000 or 24000 is going to drop to 20000 or make a U-turn right here to climb to 28000. Trying to predict such movements causes people to lose a massive amount of opportunity. It is always best to follow a defined strategy.
For those unable to create their own strategy, utilizing established model portfolios can provide long-term stability, helping investors stay aligned with the market and buy into its structural strength. Problems will always arise along the way, but they are a fundamental part of the investing journey, and one should not be fearful of them.
