The 22 October, a day which a lot of folks will remember. There was blood shedding on the Indian markets. Markets were weak from the very start and through the day remained weak. There was hardly any pocket in the market which could sustain this kind of a fall. So there was a broad-based selling across the board, whether it was large caps, mid caps, small caps, any cap. The essential pattern that this head and shoulders pattern that we have been talking about for the last few days has gotten broken. There seems to be right now no support available in the market immediately, and the consensus seems that we are going lower from here. How much lower, we will see on the charts.

The turnaround in sentiment is also coming on the back of bond yields going up everywhere in the world. US yields continuously going up, the dollar index going up, despite the fact that the Fed keeps talking about the down cycle in the interest rate. So maybe the market is calling that bluff of the fact that the interest rate cycle is coming down; maybe they will not be able to cut immediately. That may be one of the cases. FIIs, of course, continue to sell.

Let’s go see the charts as today’s topic of discussion is, is it the end of the dollar regime? We have been talking about the end of the dollar regime for the last many decades, and somehow it just continues to carry on. But a very important meet is happening today, and that is going to take some, at least more steps towards de-dollarization of the world.

Where is the market headed?

Market Overview

Nifty is down 2.9%. The chart of the Nifty is showing a clear head and shoulders pattern, and the 200 DMA is a bit of the head and shoulders pattern itself is about 1400 to 1500 points of head. So that would mean somewhere near 23,300 or something, maybe a target based on that pattern. A lot of times the pattern may not play out, but maybe like 70% probability is there that it will.

Nifty Next 50

Nifty next 50 is now back to again the lows that we saw at the beginning of October. So this bounce has basically been a false sort of rise; each of these bounces is actually suggesting that every time the market comes down, there is buying that comes as demand and puts it up. Gradually, with each of these bounds, that demand will back off, and then there will come a point where the supply will overwhelm the demand, and we go down. So that is potentially what is building up in each of these bounces.

You know, bounce, bounce, bounce, and then, you know, the sellers overwhelm the buyers.

Nifty Mid and Small Cap

Nifty mid cap also doing the same. Each bounce has been met with selling beyond, let’s say, 20,000 points that we crossed. So this is also sort of consolidation that is happening in the last four months. Down 2.5% on this. Small caps dropping very sharply in the last four sessions. Just one session of an up session which essentially didn’t do any positive gain, but essentially we have lost about 1200 points in the last four sessions. So quite sharp down. It may also be a case where it may become extremely oversold in the very short term, and we may see more bounces that may come likely.

That we will go at least to this support. There are several gaps in the charts, much lower. I don’t know if we are going there or not, but the election day high or this pivotal low is probably one of the or couple of the key sort of levels that the small cap index can also look for

Nifty Bank Overview

Nifty bank index also broke down, although in the very start of the day Bank Nifty was holding on, but later on succumbed to the overall pressure. So Bank Nifty also. Bank Nifty actually has not gotten close to its previous highs this time, and again we are sitting very near election day highs. So maybe Bank Nifty movement is going to be repeated by other indices that every index comes near the election day high at least as a reversal. That may also happen.

So -1.36% on Bank Nifty momentum trends very weak.

Advanced Declined Ratio Trends

You can see 16 advances and only 481 declines, and of course, the rest were flat. So big jump in 5%, two to 5%, and five to 10% kind of stocks. There were some in the 5 to 10% category also negative. Of course, there were a couple of them in the positive category also, but largely the entire market was negative. FIIs on the previous session have reduced some selling, 2261 crores. But I think today’s session might see some larger numbers. We will only come to know later in the evening. DIIs continue to buy at 3200 crores. This is very important that DIIs continue to get this money because if DII buying stops for whatever reason, maybe people claw back their SIPs, etc., then there is real trouble for the market brewing.

Nifty Heatmap

Heat map largely red; no major stocks were in the green. SAC Bank, mildly green at 0.6%. State Bank of India leading the banking, the PSU banking down 2.9%. Reliance down, TCS down, Maruti, HCL Tech, Mahindra, Tata Motors, NTPC, L&T, Power Grid—all these stocks down. ITC and HUL and Nestle not falling today, at least. Nifty Next 50 was much more red. DLF falling 5%. PFC, REC kind of stocks, almost 5% each. Siemens, ABB, Minda, 3% each. Varun Beverages on great results, 2.78% up. DMart also up, which has already fallen much earlier. HAL, IOC also down. Vedanta also down. Naukri, TVS Motors—everything was down. Even Adani Energy came out with some brilliant results, but that was down 0.76% by the end of the day.

Sectoral Overview

Sectoral trends all red; nowhere to escape. PSU banks down 4.2% single-day real estate stocks 3.4% single-day fall public sector enterprise stocks 3.3%. So essentially, stocks that had run up the most have been punished, except maybe pharma, which in the last twelve months has run up 51% and was down only 1.3%. Anything which was down less than 2% today was considered to be doing well; it was down 0.8%. FMCG was down 0.5%. Private banks, banking, Nifty consumption stocks—these are all down less than 2%. Autos, metals, public sector enterprise, energy, commodities—these were the ones that got thrashed.

Sectors of the Day

Nifty PSU Bank Index

PSU banks, as we’ve been mentioning, are also making a head and shoulders kind of pattern, but on a different scale and on a different level. This is the bottom of the election day low that has gotten broken. So that is really a big sign that banking as a group, PSU banking as a group has really broken down. That was an important support point for that market. If maybe this is a precursor of all others to follow this, I don’t know. But if that is the case, then, you know, we are in for a very long and cold winter, and that can really ruffle a lot of feathers. PNB down 7%, Central Bank, Bank of Maharashtra down 6.5%, Kendra Bank, IOB—all down quite massively.

Stock of the Day

Hyundai Motor India

Hyundai Motor IPO was launched today. I think the IPO was at 1920 odd rupees, if I’m not mistaken. And it was the largest public issue of 27,000 crores. It flopped on day one. I think the first three, four, five minutes it was above the IPO price, and then it just was below here. The IPO price is somewhere here, 1920.

And this is kind of very. It’s a harsh reminder of the Reliance Power IPO, which was the largest public issue at that point of time, I think 2008. And that caused a market top on launch of that IPO, the IPO listing, hoping that that’s not the case this time. But a lot of IPO investors essentially are playing a lottery flip. The IPO on the first day game. And hence a lot of folks who would have leveraged or borrowed to buy this probably would have lost money.

Story of the Day

So, as you may be aware, there is a formation called BRICS—Brazil, Russia, India, China, South Africa—and they’ve actually come out, come together as a group, and they’re now settling 65% of their trade in local currencies. So BRICS nations’ total trade amongst themselves is being settled in 65% in their local currencies and not the US dollar, which is somewhat of a big deal, actually, if you ask me. This has been a concentrated effort by Russia and China especially to not use the dollar for trade because the US is anyways seen, at least by Russia, to be an enemy state.

The US, of course, had frozen Russian assets, and that actually started this whole theme in a bigger way. If any other country can freeze your assets, then, you know, why be dependent upon them? The whole concept of your own assets being susceptible to others’ control is the counterparty risk element that has come through. Once the 400 billion or whatever is that number, Russian assets got frozen after the Ukraine war, or on the launch of the Ukraine war, Russia realized that having dollar assets is risky. China also realizing that—watching Russia—has reduced its USD reserve from, I think, $3 trillion to less than $900 billion right now. I may be slightly off on those numbers, but that is the trend because they just don’t want to, at least, hold US dollars. They can trade in dollars, but they don’t want to hold it.

India, on the other hand, is continuously increasing its dollar reserves for whatever intelligence we are having while the other nations are reducing. Hopefully, we will, you know, pause and look at this situation soon. So this summit is happening as of, as I record this as of today, and the BRICS nation share of global GDP is now 26% of the global economy. It is projected that in the next ten to twenty years, this is going to become significant as India also grows and China continues to grow, and so on and so forth.

The 16th BRICS summit is happening now between 22nd to 24th October at Kazan in Russia. Our prime minister is also there now, and this BRICS alliance is now expanding. Other countries now want to join this BRICS alliance because they are realizing maybe they are better off not siding with the US. So Egypt, Ethiopia, Iran, and UAE have added to the BRICS nation. I think Saudi Arabia is also—either they have applied or they’ve already been approved. More and more important countries are coming together.

Of course, the key topics are de-dollarization, use of local currencies, and induction of new countries onto the block. What they are trying to do is that if you have a group going and you are doing local currency trade amongst each other, then there will come a point where you will be able to float a currency of your own, of the group, with the backing of the local currencies and possibly gold as well. That becomes sort of the counter currency for the BRICS nations versus the USD.

Putin is saying that we are taking one step after another. We did not drop the dollar. The dollar is the universal currency, but we were banned and barred. So he’s admitting that the dollar is the universal currency, but they were banned. 95% of all external trade of Russia is now in national currency. They have found a way of living without the US dollar, practically. The US, of course, thought that Russia would collapse without the US dollar.

So they are proposing now a BRICS multi-currency payment system. Some prototypes have been made; say there is some demo happening at that particular meet. It is likely that, you know, gradually some deployment of that BRICS multi-currency payment system may start. China and Iran are also backing the idea as both are seeking to reduce dependence on the US dollar. Iran, of course, is a completely outlaw country from a US perspective. India so far has not declared its plans for de-dollarization. It is supporting the US dollar. UAE also, because its currency is completely pegged to the US dollar, also relies on the US dollar for its cities and economy. South Africa also is not totally in line with the idea.

Gold, however, has performed brilliantly in the last few months, and its performance is suggesting that some developments are happening where most of these countries, especially the BRICS nations, are accumulating gold. They may come up with some sort of a currency which is relatable or related to the reserves each country is holding. Just like when the euro was created, you had some strong European nations and some weak European nations, and then they came together with the same currency. Similar to that, one could be looking at some sort of a basket of currencies becoming the backing for the BRICS currency if that comes. While it seems on a day-to-day basis that it is very difficult to dislodge the dollar, once a credible option is there, the adoption and change take much less than what one would normally think.

While the dollar remains the undisputed powerful currency of the world because it is also backed by its military, the US will do everything to thwart these attempts. Maybe there will be more wars as we go along trying to disrupt this. But gold is suggestive that it is basically an antidote to the US dollar. Gold going up means the dollar is weakening, and that’s exactly what is happening, especially since 2016, where gold has gone up from $1,000 to $2,700. Who knows where we are going? We may be going to $5,000, $10,000; I don’t know.

So it is telling you that the dollar performance is dipping. However, on the dollar front when we compare it to other major currencies—the Japanese yen, Swiss franc, euro, etc.—the dollar is still holding up well. The dollar index is at 103.8; very recently it was at 90 in 2021. So there, the weakness is not very evident, although it’s a very techy and interesting game how it will play out.

But I think for Indian investors, having exposure to gold will make sure that if the dollar collapses, gold probably takes over in terms of saving that purchasing power for you. Of course, also if there is any upheaval in the Indian market, in the equities like we are seeing on a day like this, you are seeing that in the last few weeks, as the indices have come off, gold in Indian rupees has jumped like crazy and is compensating for some part of the hedge to your equity portfolio.