Markets snap 8-day winning streak on profit-booking
The benchmark indices lost over 1% in a volatile trading session on Friday, snapping an eight-day winning streak, amid profit-booking and weak global cues. The indices ended marginally in the green for the week, posting fifth straight week of gains.
The S&P BSE Sensex ended the day at 59,646 on Friday, down 652 points or 1.1%, after crashing 937 points from the day’s high. The Nifty 50 settled at 17,758, down 198 points, or 1.1%, dragged down by realty, oil & gas, metals and bank indices.
The rupee erased all of the gains registered at the beginning of the week to inch towards a three-week low on Friday, amid a recovery in crude oil prices and the gain in dollar to a one-month high.
The minutes of the US FOMC meeting indicated that the Federal Reserve may continue to opt for rate hikes to combat inflation. The FOMC plans to double the rate of balance sheet shrinkage in September.
FPIs have net bought equities to the tune of $5.6 billion, paring the year-to-date net selloff to $22.2 billion. Further FPI flows may be dictated by Fed actions, the dollar index and the movement in crude oil prices. The dollar index has moved up more than 2% in the last five days to 108 levels.
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EM funds have significantly increased their allocation to India in July (19.7% vs 18.1% the previous month), while allocation to China reduced substantially (36.2% vs 39.4%), according to a report by BofA Securities. The report attributes this to India’s better growth prospects amongst large EMs, softening commodity and crude prices and the relative outperformance of INR within EMs.
However, India’s overweight position within EM funds is still at multi-year lows at 0.14% versus 0.66% in November 2020.
“We expect India’s economic/earnings growth to outperform large EMs and hence remain optimistic on domestic cyclicals and defensives. However, we remain cautious on external facing sectors such as IT, Energy and Materials, given global macro headwinds,” BofA Securities observed.
Asian stock markets were trading mixed on Friday, following the broadly positive cues from global markets overnight while European markets were modestly higher.
The benchmark indices have rallied by about 7.7% in the last month amid a softening in commodity prices, FPI buying, healthy monsoon and better than expected earnings season. Global crude oil prices have fallen to six-month lows. India’s consumer inflation dipped for the third straight month in July, raising expectations that the Reserve Bank of India might slow down the pace and quantum of rate hikes in the coming months.
The Sensex is 4.2% away from its lifetime high of 62,245 it reached on October 19 last year.
“Technically, the Nifty has formed a long bearish candle and also broke the important support level of 17,850 which is broadly negative. In addition, it has also formed Hammer candlestick formation indicating further weakness in the near future,” said Amol Athawale, deputy vice president – Technical Research, Kotak Securities.
The market will keep a close watch on the Jackson Hole Symposium next week that will provide cues on further Fed action.
