Where is the market headed?
A complete reversal of fortunes has unfolded for IT services companies. Over the past few days, the artificial intelligence sector has experienced a brutal sell-off across global markets. Major international companies in South Korea, Japan, and the United States, including SK Hynix, Samsung, Nvidia, Micron, and SanDisk—are plunging, reflecting a sharp drop in investor confidence regarding holding AI stocks. The primary contra trade to this AI slump has been the software services sector, which had previously been hammered down in India.
While there is no definitive confirmation that software services companies will sustain long-term growth in this environment, the contra trade is currently playing out. Whenever AI stocks decline, Indian software companies receive a boost. On Tuesday, July 28, companies like Coforge, TCS, and Tech Mahindra performed notably well, standing out as the primary highlights of the trading day.
Market Overview
Despite selective gains in the IT sector, the overall market downtrend continues. The Nifty remained relatively flattish on July 28, hovering and stagnating near the 24,000 mark rather than collapsing entirely, even as the broader market declined.
Major Market indices
Other indices took a heavier hit, with Nifty Next 50 falling by 0.7 percent. Mid-caps managed to escape the broader downward movement, but both small-caps and Bank Nifty lost about half a percent each.
Heat Maps
Commodity movements also mirrored the market’s uneasy state. Coal India dropped alongside falling crude oil prices, which slid from nearly 96 or 97 dollars down to the 83 to 84 dollar range. However, this drop in oil prices provided no noticeable relief to equities. Meanwhile, banking heavyweights HDFC Bank and ICICI Bank continued to reel under persistent selling pressure.
A major contributor to the downward pressure on the Nifty was Hindustan Unilever, which was smashed down by almost 7 percent, even though other stocks attempted to counter this drop during the session. On the flip side, Nestle offered support to the Nifty by rising 3 percent. Key IT stocks like TCS, Infosys, HCL Tech, and Tech Mahindra provided additional boost to the index. Looking at the Nifty Next 50 heat map, the picture was even more red. Previously strong market leaders, particularly in the capital goods sector such as CG Power, Enrin, and Cummins, were struck badly.
Top Gainers & Losers
Sectoral Overview
From a sectoral perspective, very few sectors managed to end in positive territory outside of Nifty IT, which jumped about 3 percent, and Nifty Real Estate, which gained 2 percent. The biggest sector losers included Public Sector Enterprises, FMCG, dragged down primarily by Hindustan Unilever and DMart, Energy stocks down nearly 2 percent, Defense stocks down 2.1 percent, and Central Public Sector Enterprises losing ground overall.
Sector of the Day
Nifty IT Index
The broader markets remain in a complete mess right now without a clear direction. While IT stocks have experienced a jump, market participants remain cautious about calling a sustainable reversal until previous highs are crossed to give confidence to the bulls. The IT index has been making a sequence of lower highs and lower lows. A move crossing above the 31,500 level to make a higher high and continuing upward would likely signal a change of trend.
U.S. Market Update
In global markets, the previous US trading session delivered a mixed bag. The Nasdaq fell 0.3 percent, while the Dow Jones and Russell 2000 gained roughly half a percent. Top US gainers included Shopify, Workday, Thomson Reuters, Autodesk, and MicroStrategy, surging between 7.5 percent and 11 percent. Conversely, the AI brigade, including SanDisk, Lumentum, ASML, AMD, and Nvidia, was smashed down between 5 percent and 11 percent.
Some of these names feature in market strategies, but given the massive market capitalization of companies like Nvidia and AMD, these sharp falls severely impact overall market cap. Sentiment has completely changed within a couple of weeks, turning AI into a bleeding sector for recent entrants who bought in due to fear of missing out.
Tweet Of The Day
Examining historical price action offers valuable perspective on these market movements, as highlighted by a 30-year chart of Hindustan Unilever. This is not the first time the company has faced extended stagnation. Following a peak around 1999, Hindustan Unilever spent nearly ten to eleven years without making a meaningful new high.
Good companies with fantastic histories can experience lumpy performance at times. Because not every investor has the patience to ride out decadal stagnations, tracking trend formation is essential. The effective strategy is to ride the trend when it is in your favor and exit when it turns against you. In the current scenario, Hindustan Unilever has been in a similar setup for almost six years and counting, with the possibility that it could extend to ten years without gains or drop further. Because past occurrences may or may not repeat in the future, having an established exit strategy for adverse conditions is critical.
