Where is the market headed?

Today, we saw a small bounce in the market following the US Federal Reserve rate cut meeting. The general sentiment across Asian markets was mixed, with indices both up and down. A key factor influencing the domestic market is the continued weakening of the currency, with the USD INR hitting a new high of 90.37 against the US dollar, which means the rupee has depreciated to a new low.

A depreciating currency puts upward pressure on stock markets as they must price in the loss of currency value. While this provided a relief day after the severe battering in previous sessions, the movement in the currency is concerning.

The rise in the USD INR, particularly after the US rate cut, is a point of worry. Typically, a US rate cut would lead market participants to expect capital flow from US dollars toward emerging market currencies like the rupee. The fact that the dollar-rupee pair has made a new high post-rate cut suggests there could be further depreciation of the rupee.

Market Overview

Market indices showed a strong rebound, with the Nifty up 0.55% and Nifty Junior gaining 0.50%, placing the Nifty Junior very near the 25,900 level again.

Nifty Next 50

Nifty Mid and Small Cap

Mid caps saw a good bounce of 0.85%, though a move above 22,000 is needed for a decisively positive outlook. Small caps gained 0.58%, bringing a sense of stability after a few difficult days.

Bank Nifty

The Nifty Bank index moved up 0.42%, staying within its recent range for the third consecutive day without a decisive move, but managing to hold its ground.

GOLD

In the precious metals space, Gold has moved up and is now near 13,000 per gram, with the metal likely to break out into a new high, following silver’s lead.

SILVER

Silver continues to make newer and newer highs, now priced at 1,91,500 per kilo. This is a huge and ferocious run, climbing from 1,50,000 in the third week of November to 1,91,000 in the second week of December. This rapid surge in silver is likely a reflection of a short silver market in terms of delivery and how far silver prices had lagged behind other asset classes like gold and equities. The monumental breakout happened near the $50 mark on the dollar chart. While the move looks stretched, silver rallies can last for many years, though they are often followed by dramatic collapses. Consequently, silver is considered a very risky and dangerous metal to trade, with longer-term investors generally finding gold a safer alternative.

USDINR

As mentioned, the USD INR closed at 90.31, up 0.62%, which is not good news for the rupee.

Advance Decline Ratio

However, the positive news for the day was that advances continuously increased throughout the session, as clearly seen by the continuous upward movement of the green line on the chart. The day closed with 342 advances to 158 declines.

Heat Maps

The Nifty heatmap was mostly green, with Jio, Kotak Bank, Zomato, Tata Steel, and Adani Enterprise leading the gains. There were some losses in stocks like Bharti Airtel and Asian Paints.

The Nifty Next 50 heatmap was also predominantly positive, with minor losses in IOC, BPCL, Chola Finance, Enrin, and Bajaj Holding. Good gains were observed in Hindustan Zinc, Vedanta, Divi’s Lab, Adani Green, Motherson Sumi Systems, and Bosch.

Mover Of The Day

In the mover of the day segment, Ola Electric moved up 6.76%. This jump occurred despite the S&P downgrade of the promoter ANI Technologies, possibly indicating a dead cat bounce, a pattern observed many times in the past for this stock, which has disappointed many investors.

Sectoral Overview

Sectoral trends showed that most sectors gained. Nifty Media and Oil and Gas were the only two that were slightly in the red. The Capital Markets sector came back very strongly, posting a 2.7% gain. When the Capital Market sector leads either up or down, it typically signals a strong move in that direction. Autos also moved up 1.1%, while Metals and Pharma gained nearly 1% each, making it a decent day for the market overall.

Sector of the Day

Nifty Capital Market Index

The Capital Market sector has recovered all losses from the previous session, with KFin Technologies, BSE, Angel One, and Nuvama all recovering very well.

U.S. Market

The previous session in the US markets saw good gains, which were solidified post the Fed rate cut. The S&P was up 0.6%, Dow Jones gained 1.1%, and Russell 2000 rose 1.3%. Several stocks performed well, including American International, GM, Charter Communications, Nike, and US Bancorp, all up nearly 4% to 6% in the markets. A reminder is necessary that some of these stocks could be part of a US stock strategy, but these are certainly not recommendations.

Tweet Of The Day

A very interesting development shared in the Tweet of the Day segment, originally highlighted by Sunil Reddy, pointed to a change in the Indian pension regulator’s investment thesis. The PFRDA has permitted investments in gold and silver ETFs, marking possibly the first time that pension funds are being allowed to invest a portion of their corpus into commodities.

This move is expected to open up significant capital flow into precious metals. More importantly than the pension fund news itself is the signal it sends from the government, suggesting a shift in thought process towards encouraging citizens to hold more precious metals and strong assets. While previous government actions had often deterred investment into precious metals through taxation, this appears to be the first signal that the government is encouraging investment in gold and silver, a change that the market is likely to receive very well. This is viewed as a significant change in government-level thinking by allowing citizens to invest in hard metals and hard assets.