Where is the market headed?
There is a visible sigh of relief among market players as the week comes to a close, offering at least two days where the markets cannot go down further. A joke currently circulating in the market suggests that FOMO has a new name: “fear of market opening.” This level of anxiety often leads to poor decision-making, though the small bounce seen today is certainly welcome.
A significant point of discussion today is the price of gold, which has been slammed down over the last 24 hours. After trading near 15,800 or 15,600 on a 10-gram basis, it suddenly dropped to 14,200 and is currently trading at 14,800. This indicates that the short-term and potentially mid-term trends for gold are broken. The breakdown of market structure is not limited to gold; it is happening across all markets, causing extreme illiquidity in certain pockets. This leads to big margin calls and urgent liquidity requirements.
Consequently, assets like gold and silver, which have seen gains over the last year, are being sold off immediately in liquidation sales. While the long-term path remains well-defined, the short and medium terms are wobbling and will likely need time to create a proper structure before returning to an uptrend.
Market Overview
The market currently appears absolutely flat, with a movement of 0.49% being neither here nor there. All momentum trends remain negative, and we are at the lowest point since the war started. Every attempt to move higher has failed. Oil prices, which hit 119 yesterday before collapsing to 105, are back near 111 at the time of this recording.
The situation has shifted from simple geopolitics to a war on global energy infrastructure, evidenced by significant damage to the Qatar refinery. It will take years for that capacity to return online, meaning energy costs will remain very high. While new investments will eventually flood the energy pocket and potentially make energy cheap in the distant future, it remains a highly inflated commodity for the short and medium term.
In India, industrial fuel has been jacked up by 25%, which will cause ripple effects of inflation for many quarters to come. High inflation is a reality companies must now navigate, and consumer demand is expected to become more volatile.
Nifty Next 50
Nifty Junior was flat at 0.45%, while mid-caps rose 0.6%, maintaining a positive short-term trend.
Nifty Mid and Small Cap
Small caps were up 0.26%, and the Bank Nifty remained absolutely flat. HDFC Bank has struggled to recover after yesterday’s drubbing. The market is largely in a “wait and watch” mode; if oil climbs to 120 or 130, markets are expected to fall further. The primary signal the market awaits is the stabilization of oil. Meanwhile, the rupee continues to tank, currently sitting around 93.75, with some forex analysts predicting a range of 95 to 100 very soon.
Bank Nifty
GOLD
While gold had a small 1.23% uptick today after being thrashed yesterday, its mid-term trend remains negative. Silver also struggled, down 0.39% for the day.
SILVER
Advance Decline Ratio
The advance-decline ratio offered a slightly better picture with 294 advances to 205 declines, a result we will take with both hands in the current climate.
Heat Maps
HDFC Bank led the market down today, dropping 2.22%. For years, the bank’s 20% growth and marquee management led many to view it as a pristine institution where nothing could go wrong. However, as companies grow larger, they can become inefficient or enter a comfort zone. While personal experiences with the bank may vary, private banking valuations have dropped from 45 times book value to about two times.
For the last year, money has been moving away from private banks and into PSU banks, which have performed well over the last six months.
Reliance led the markets up today, and the energy, IT, steel, and commodity sectors are beginning to inch higher. In the Nifty Next 50, PSU banks like Bank of Baroda, Canara Bank, and PNB performed well, alongside Jindal Steel and Hindustan Zinc. Losses were seen in Lodha, Solar Industries, Mazagon Dock, and CG Power.
Movers Of The Day
In the movers of the day, Brainbees (First Cry) rose 19.43% following news of quick delivery services in Bangalore, Pune, and Hyderabad. Olectra also saw a 9.65% bounce after recently hitting a new low. These movements remind us that stocks don’t grow to the skies, nor do they fall to the ground indefinitely; they eventually find a range where they refuse to go lower. Investors following a specific strategy should not succumb to over-fear. Fear is often reserved for those without a plan; those following a proper strategy should remain calm.
Sectoral Overview
Sectoral trends were a mixed bag, with capital markets down 1.74%, real estate down nearly a percent, and defense down 0.73%. Gainers included Nifty IT at 2.1%, PSU banks at 2%, and Pharma at 2%. Looking at the last month, real estate is the worst hit at minus 15%, followed by financial services, private banks, and Nifty Bank all down around 12%. Energy and defense have been the least affected.
Sector of the Day
Nifty IT Index
Nifty Capital Market Index
U.S. Market
In the US, markets were down between a quarter and half a percent, though the Russell 2000 rose 0.6%. Gaining stocks included Accenture, Starbucks, AMD, Intel, and ConocoPhillips—some of which are part of our US stock strategy.
Tweet Of The Day
A notable tweet regarding the HDFC Bank ADR shows that after recent falls, the ADR is at the same price it was eight years ago. This is the price of safety; an investor buying in 2017 or 2018 expecting 20% compounding would be stuck at the same price today, while the rest of the world moved through various cycles.
Looking at the India price chart, the stock is challenging its 200-week moving average. Historically, this has been a point for long-term buyers to accumulate once the price starts moving back up. Momentum players, however, will wait for a confirmed uptrend to avoid “catching a falling knife.”
