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NSE Intra-day chart (01 July 2021)
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Market Commentary 02 July 2021
Benchmarks to make slightly positive start tracking global peers


Indian equity benchmarks closed lower for a fourth straight session on Thursday as new Delta and Delta plus variants of novel coronavirus push Covid-19 cases higher across the globe. Markets made slightly positive start as traders took some support with Principal Economic Adviser (PEA) Sanjeev Sanyal's statement that the Indian economy is likely to witness close to double-digit growth in the current fiscal year despite the second Covid-19 wave ravaging the country. Some support came as data released by the RBI showed India reported a current account surplus of 0.9 percent of GDP in the pandemic-hit FY21, as against a deficit of 0.9 percent in FY20. However, key indices erased gains and turned lower in morning deals as Indian manufacturing activity fell back into decline in the month of June, as the intensification of the pandemic and strict containment measures negatively impacted on demand. As per the survey report, the Nikkei India Manufacturing Purchasing Managers' Index (PMI) - a composite single-figure indicator of manufacturing performance - fell to 48.1 in June as against 50.8 in May. Markets continued to show choppy movement with negative bias, as India's external debt surged by $11.5 billion year-on-year to $570 billion as of March-end 2021, according to the Reserve Bank of India data. The external debt to GDP ratio rose to 21.1 per cent as of March-end 2021 from 20.6 per cent a year ago. Some concern also came with the rating agency -- Standard and Poor's (S&P) has said Indian banks face systemic risks as the country wades through the aftermath of the Covid-19 second wave. The banking sector's weak loans are likely to remain elevated at 11-12 per cent of gross loans in the next 12-18 months. Traders also took note of Principal Economic Advisor Sanjeev Sanyal's statement that India's economy is on the mend after the pandemic-induced shocks but it may take an additional year or so to achieve the $5 trillion-mark. Meanwhile, India's fiscal deficit in April-May stood at 8.2 per cent of the budget estimates (BE), as compared to 59 per cent in the same period last year. The deficit was less 30 per cent less of last-year's level of Rs. 4.7 trillion amid the nationwide lockdown to contain the coronavirus. Finally, the BSE Sensex fell 164.11 points or 0.31% to 52,318.60, while the CNX Nifty was down by 41.50 points or 0.26% to 15,680.00.


The US markets ended higher on Thursday ahead of the release of the Labor Department's closely watched monthly employment report on Friday. Street currently expect the report to show employment jumped by 690,000 jobs in June after surging up by 559,000 jobs in May. The unemployment rate is expected to dip to 5.7 percent from 5.8 percent. A day ahead of the release of the monthly jobs report, the Labor Department released a report showing first-time claims for US unemployment benefits fell by more than expected in the week ended June 26th. The report said initial jobless claims slid to 364,000, a decrease of 51,000 from the previous week's revised level of 415,000. Street had expected jobless claims to dip to 393,000 from the 411,000 originally reported for the previous week. Meanwhile, a separate report released by the Institute for Supply Management (ISM) showed a modest slowdown in the pace of growth in US manufacturing activity in the month of June. The ISM said its manufacturing PMI slipped to 60.6 in June from 61.2 in May, although a reading above 50 still indicates growth in the manufacturing sector. Street had expected the index to edge down to 61.0. On sectoral front, significant strength emerged among airline stocks, as reflected by the 1.4 percent gain posted by the NYSE Arca Airline Index. Housing stocks also turned in a strong performance on the day, resulting in a 1.2 percent advance by the Philadelphia Housing Sector Index.


Crude oil futures ended sharply higher on Thursday amid optimism about the strong outlook for energy demand. Despite concerns that oil demand could falter in the near term due to the surge in the delta variant of the coronavirus cases and travel curbs in several countries, Street expects demand to pick up during the later part of the year. Further, the advance came ahead of a meeting among Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC partners, an energy alliance often referred to as OPEC+, who have been positive about improved market conditions and the outlook for fuel demand growth following a sharp rebound in oil prices this year. OPEC+ meeting has been postponed to Friday. Crude oil futures for August rose $1.76 or about 2.4 percent to settle at $75.23 barrel on the New York Mercantile Exchange. September Brent crude surged $1.50 or 2 percent to settle at $76.10 a barrel on London's Intercontinental Exchange.


Indian rupee ended considerably lower against dollar on Thursday on emergence of demand for the greenback from importers. Traders were worried as India's manufacturing sector activities contracted for the first time in 11 months in June as rise in coronavirus cases and strict containment measures adversely impacted demand as well as resulted in job losses. The seasonally-adjusted IHS Markit India Manufacturing Purchasing Managers' Index (PMI) declined to 48.1 in June from 50.8 in May. Some anxiety also came as India's external debt surged by $11.5 billion year-on-year to $570 billion as of March-end 2021, according to the Reserve Bank of India. The external debt to GDP ratio rose to 21.1 per cent as of March-end 2021 from 20.6 per cent a year ago. On the global front, sterling fell on Thursday after Bank of England Governor Andrew Bailey warned against over-reaction to rising inflation in Britain. Finally, the rupee ended 74.55, weaker by 22 paise from its previous close of 74.32 on Wednesday.


The FIIs as per Thursday's data were net seller in both equity and debt segment. In equity segment, the gross buying was of Rs 6287.00 crore against gross selling of Rs 7407.02 crore, while in the debt segment, the gross purchase was of Rs 343.73 crore with gross sales of Rs 366.49 crore. Besides, in the hybrid segment, the gross buying was of Rs 16.27 crore against gross selling of Rs 7.59 crore.


The US markets ended higher on Thursday as a new quarter and the second half of the year began with upbeat economic data and a broad-based rally. Asian markets are trading mostly in green on Friday as investors look ahead to a closely-watched US jobs report set to be released later. Indian markets closed in the red for the fourth consecutive day on Thursday, as micro data weighed on sentiment coupled with losses in energy, IT and financial stocks. Today, the start of session is likely to slightly positive tracking gains in global markets. Investors will continue to watch out for the OPEC+ meet outcome that was delayed to today after the United Arab Emirates blocked a plan for an immediate reduction in supply cuts. Some support will come as the India Meteorological Department (IMD) said Southwest Monsoon over the country is likely to be normal in July. In the forecast for July, IMD Director General Mrutunjay Mohapatra said rainfall is not expected to be good in the first week, but it is likely to pick up in the second half of the second week of July. Traders may take note of report that former Union agriculture minister Sharad Pawar said agricultural universities are essential for strengthening the country's economy. However, traders may be concerned as India recorded 43,360 infections and 796 fatalities in the last 24 hours. The total coronavirus caseload stands at 30,453,937, while Covid-19 deaths in India have crossed 400,000. In just over five weeks, from May 23 to July 1, the country reported 100,000 deaths from Covid even as the second wave waned. The World Health Organization has said the Delta variant of Covid-19 is now present in nearly 100 countries as per conservative estimates, and warned that in the coming months the highly transmissible strain will become the dominant variant of the coronavirus globally. There may be some cautiousness as Reserve Bank Governor Shaktikanta Das said the second wave of the pandemic took a grievous toll on India, but the dented economic activity has started recovering from late-May. In a first, Das flagged the rising data breaches and cyber-attacks as a risk facing the economy, along with others like firming global commodity prices. There will be some reaction in banking stocks as the Financial Stability Report of Reserve Bank of India showed banks did not see their bad loan position worsening during the pandemic year of 2020-21 as the gross non-performing asset (GNPA) ratio stayed stable at 7.48% of the gross advances at the end of March 31. It added that The GNPA ratio of banks may rise to 9.8-11.22 percent by March 2022 under various stress scenarios due to the impact of the COVID pandemic. Auto stocks will be in focus as major automakers, including Maruti Suzuki, Hyundai, Tata Motors, Mahindra & Mahindra, Kia, Toyota and Honda, reported healthy growth in passenger vehicles sales in June, recovering from the disruptions induced by the second wave of COVID-19. There will be some buzz in power sector stocks with power ministry data showing that power consumption in the country grew by nearly 10 per cent in June to 115.39 billion units (BU) compared to a year ago, but is still lower than the pre-COVID level.


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