How are the Markets Looking ?

As we look at the market trends for the week of 25th October, it appears to be another challenging period for investors. The Nifty index has broken through its recent support levels and past support of the last few months, causing concern among traders. The downward momentum seems to be pushing the market towards the 200 DMA (Day Moving Average), indicating a potential further decline. 

One significant observation is that this recent support breach is not an isolated incident. In fact, it is the second breach in a short period, indicating a potentially more significant problem in the markets. The support level breached in the first week of October was also critical, highlighting the seriousness of the situation.

Nifty Heatmap

Several leading stocks have also performed poorly, adding to the overall bearish sentiment in the market. Infosys, for instance, has witnessed a substantial decline of nearly 3%. Other prominent stocks, such as NTPC, LNT, ITC, ICICI Bank, HDFC Bank, Kotak Bank, and Bajaj Finance, have also experienced downward pressure.

However, amid the widespread decline, there have been a few exceptions. State Bank managed to hold its ground, while Unilever and Nestle remained relatively stable. Cipla, Divis Lab and Bharti Airtel also down. Maruti and Mahindra & Mahindra even recorded slight gains. Nevertheless, Tata Motors also lost some ground. 

Sectoral Overview

Examining the performance of different sectors, it is evident that the downtrend is broad-based. IT stocks lost the most at around 1%. Notably, private banking was down 1%, real estate similarly down 1%, infrastructure, PSEs, pharma, bank nifty, and energy sectors have all witnessed a decline of over half a percent. The only two sectors that seem to be unscathed are PSU banks and metals, although they too have suffered losses in the previous session. 

The extent of the decline over the past week is quite dramatic. It has not only wiped out the gains from the previous month but also eroded the gains accumulated over the past three months. Currently, no sector has shown double-digit returns. Public sector enterprises have come closest, at 9%, followed by real estate at 8% and PSU banks at 6%. Most other sectors are either flat or negative.

Mid & Small Cap Performance

Mid-cap stocks have also lost further ground, further exacerbating the overall pessimism.The support has gone, now we will have to wait for some consolidation to happen and another set up to happen. Nifty Small Cap Index has also broken its previous supports. Although, there was a decent bounce today but after 2 sessions of collapse like this, a bounce of 150 points is not of such meaning. Markets are definitely oversold, the broader market RSI is much lower than where you would want it to be. A few days of bounce is always possible. 

Bank Nifty Overview

Bank Nifty has performed the worst. Over the past three months, it has fallen 6.6%. This is largely led by Private Banks at -5.2%. The performance of Bank Nifty over the past twelve months has been particularly underwhelming, with a negligible gain of 0.4%. 

The recent breakdown in the Nifty Bank also highlights the gravity of the situation. Not only has it breached the 200 DMA, but it has also broken through a support level that had held for almost five months. The previous low at 43,600 is also no longer intact, resembling a double-top formation with a breakdown. This suggests a possible decline of a couple of thousand points for Bank Nifty. We could be looking at 41,500 for Bank Nifty if it has to go there. While short-term traders face a difficult situation, there are still pockets of strength in the market. 

Stock in Focus – BSE Limited

BSE Limited, for example, has defied the market conditions and continued its upward trajectory. This can be attributed to the news of the company increasing its transaction costs, leading to higher gross margins and improved EPS estimates. This kind of momentum that has been achieved in a weak market shows the relative strength of the stock. Identifying stocks with relative strength compared to the overall market can be a valuable strategy in such challenging times.

Highlights – US Dollar Index

Another factor impacting the emerging market story is the strengthening US dollar index. After experiencing a decline to 105.4, the index has rebounded to 106.5. This poses a significant challenge for emerging markets as more investors prefer to move their funds to US dollar treasury bonds, which now offer a yield of 5% or more. This redistribution of risk assets puts further pressure on the emerging markets.

In conclusion, the market conditions for the week of 25th October have been discouraging for bulls. Despite a few quarters of positive performance, a considerable portion of the gains has been wiped out. However, it is essential to remember that market fluctuations are a natural part of investing. While there may be setbacks, sticking to a well-thought-out investment strategy can help investors weather the storms and achieve long-term success.

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