Where is the market headed?
The Asian markets experienced a severe downturn today, cracking very hard across major indices. The Korean market dropped sharply, hitting its limit down at almost 10%, while the Hang Seng index fell a couple of percent. China slipped by 3%, Shanghai lost 1.6%, and the Nikkei index declined by 3.5%.
This sharp sell-off occurred right after a couple of banks upgraded the likelihood of interest rate hikes, sparked by circulating talk that the Federal Reserve may hike rates three times this year. This sentiment was further compounded by recent murmurs from the Anthropic CEO indicating that the substantial capital expenditure being poured into the sector needs to be matched with actual revenue at some point
As noted in yesterday’s market analysis, the chip-making AI segment appears to be hitting a top, and that scenario is now playing out. While India does not have a direct major role in this specific segment, the domestic market fell in sympathy with global peers. The rising dollar index is pulling down all risk assets, creating widespread pressure across equities, gold, and commodities. Money continues to flow toward the US dollar given the increased prospects of interest rate hikes later in the year.
Market Overview
The Nifty closed sharply lower by 1.16%, signaling that short, mid, and long-term trends have turned downwards. There are two potential scenarios playing out from a technical perspective. The first scenario is that the upward leg initiated in the middle of June has concluded, and a downward movement has begun. The second scenario is that the market is building a small shoulder here to form a head and shoulders pattern before eventually moving back up.
Broader Market Indices
The downward trend was visible across all market indices today. The Nifty Bank fell 1.1%, the Nifty Next 50 dropped 1.3%, and mid-caps lost 0.95%. Interestingly, small-caps dropped the least at 0.57%. Over the last many weeks, it has become clear that the small-cap trend is relatively stronger than the rest of the market. Small-caps seem to have bottomed somewhere, whereas other market capitalizations continue to fall.
GOLD
In commodities, gold was down 1.47% today, falling to 14449 per gram.
Crude Oil
Crude oil remained stable at 78 as ongoing negotiations are seemingly progressing well, providing good stability to oil prices. Consequently, the market is no longer actively monitoring the crude oil equation, leaving the strengthening dollar index as the primary driver of current market movements.
Heat Maps
The software and IT services sector continues to get smashed down both in India and globally. Major international firms like Accenture, Cognizant, and Intuit have been beaten down severely, and Indian IT giants were not spared either, with TCS, Infosys, and Wipro all falling by 3% or more.
Commodities and banking stocks were also heavily hit today. Major names like JSW Steel, Tata Steel, Hindalco, Vedanta, HDFC, ICICI, and even Reliance registered losses. Within the Nifty Next 50, virtually everything ended in the red except for Dmart, along with some marginal gains in Cholamandalam Finance, Zydus Lifesciences, and Torrent Pharmaceuticals. There was truly no place to hide in the market today.
Top Gainers & Losers
Sectoral Overview
Looking at sectoral performances, pharma was the sole gaining sector, up 0.92%, while all other sectors closed lower. Metals dropped dramatically by 3.2% led by Vedanta, the Nifty IT index fell 2%, and PSU banks dropped 2%. Most other sectors fell between 1% and 1.5%. This broad-based decline indicates that the current movement is not just a temporary blip on the chart, but rather the start of at least a short-term downtrend.
Sector of the Day
Nifty Metals Index
The decline in the metals index was driven heavily by Vedanta, National Aluminium, Hindustan Zinc, Jindal Steel, and NMDC. Vedanta faced additional pressure because its promoters sold around 2000 crores worth of stock, which cheapened market confidence.
Nifty Pharma Index
On the positive side, the pharma index hit a new high, with Piramal Pharma, Gland Pharma, Laurus Labs, Aurobindo Pharma, and Zydus Lifesciences leading the charge. This indicates that capital is moving toward defensive strategies, specifically favoring pharma over FMCG and IT, which traditionally served as defensive sectors but are not playing that role right now.
U.S. Market Updates
The previous session in the US markets presented a mixed bag. The S&P 500 and Nasdaq were down marginally, while the Dow Jones closed slightly higher. The Russell 2000 managed a solid gain of 0.83%. In the technology space, Micron Technology surged 7%, while Lam Research, Intel, Lumentum, and SanDisk all gained between 4% and 7%. These familiar chip-making and AI names showed strength even as ARM Holdings, Palantir, Netflix, and Alphabet dropped between 5% and 7.5%. Some of these volatile tech names are included in the Weekend Investing US stock strategy, though these mentions do not constitute formal recommendations.
There are indicators that a tech bloodbath may occur in the US markets tonight, led by major corrections in big names like Google, Amazon, Nvidia, Microsoft, and Meta. Broadcom (Avgo) and ARM also lost heavily, while KLA Corporation, Cisco, AMD, and ASML remained flat or performed well. Micron and Intel have notably outperformed the broader market in a significant way.
Tweet Of The Day
Shifting to a broader investment lesson, today’s focus is on a case study of Accenture. Accenture is a massive 700,000-person organization and has been a phenomenal compounding machine over the last decade or two. However, the stock has been falling relentlessly and is now down almost 70% from its historic high. Even though it is a great company, the narrative at every step of its decline, from 400 to 300, 300 to 200, and 200 to 150, was that the drop represented a healthy pullback, that it was getting oversold, and that it could not possibly go lower. Yet, the stock continues to slide.
A normal refrain among investors is often that a stock has already fallen so much that it cannot fall further. In reality, a stock that is already down 50% can easily go down another 50%, cutting remaining capital in half once again. Falling knives must be recognized as falling knives, offering crucial lessons for all investors.
Whether looking at Accenture, Nike, Adobe, or numerous Indian companies currently in the same position, investors must learn to question their initial thesis when a stock continues to drop despite growing earnings and reasonable price-to-earnings ratios. Deciding at what exact point to take defensive action is vital.
