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Market Commentary 27 January 2022
Benchmarks likely to make gap-down opening amid weak global cues

 

Breaking 5-day losing streak, Indian equity benchmarks staged a smart recovery from opening lows and closed at day's high on Tuesday, led by strong buying interest in PSU, telecom and utilities stocks. The benchmark indices had opened with a massive downside gap, as traders remained cautious after ICRA projects fiscal deficit at a higher Rs 17.9 trillion, driven by the two major outlays intended to bolster confidence amongst households, namely free food grains under the PMGKAY scheme and an enhanced outgo for MGNREGA. Some cautiousness also came as private report stated that the ongoing third wave of the coronvirus pandemic has dragged business activity almost back to the pre-pandemic levels. Traders were also worried as exchange data showed Foreign Institutional Investors (FIIs) remained net sellers in the capital market as they offloaded shares worth Rs 3,751.58 crore on Monday. However, equity markets reversed losses during the second half of the trading session, taking support from former Niti Aayog Vice Chairman Arvind Panagariya's statement that the Indian economy has recovered 'handsomely' from the pandemic-induced disruptions, while expressing hope that the recovery will be sustained and the growth rate of 7 to 8 per cent will be restored. Traders also found some solace with the commerce ministry's statement that exports of engineering goods rose 54 per cent to $81.8 billion during April-December 2021-22 as compared to the same period of the previous year. In the corresponding nine-month period of 2020-21, exports stood at $52.9 billion. The sector accounted for over 27 per cent in India's total exports basket during the period. Adding to the optimism, around 10.28 lakh new members joined the ESIC-run social security scheme in November 2021 against 12.39 lakh in the previous month, giving a perspective on formal sector employment in the country. The latest data is part of a report released by the National Statistical Office (NSO). Finally, the BSE Sensex rose 366.64 points or 0.64% to 57,858.15 and the CNX Nifty was up by 128.85 points or 0.75% to 17,277.95.

 

The US markets ended mostly lower on Wednesday after the Fed indicated that it plans to begin raising interest rates soon, citing elevated inflation and a strong labor market. The Fed left interest rates unchanged at near-zero levels as widely expected but said the Federal Open Market Committee (FOMC) expects it will soon be appropriate to raise the target range for the federal funds rate. The comments from the Fed were largely in line with expectations, as CME Group's FedWatch Tool currently points to an 85.7 percent chance of a quarter-point rate hike at the next FOMC meeting in mid-March. In an effort to combat the economic impact of the coronavirus pandemic, the Fed has left interest rates at zero to 0.25 percent since March of 2020. The Fed previously pledged to leave interest rates unchanged until labor market conditions have reached levels consistent with the FOMC's assessments of maximum employment. Fed Chair Jerome Powell claimed that the central bank has quite a bit of room to raise interest rates before it would harm the economy. The central bank also said it would further reduce the pace of its bond purchases to $30 billion per month beginning in February, with the Fed saying it expects to end its asset purchase program by early March. In a separate statement, the Fed outlined plans to significantly reduce the size of its balance sheet, saying it expects to start the reductions after it begins raising interest rates.

 

Crude oil futures ended higher on Wednesday amid rising geopolitical tensions. US President Joe Biden has warned Moscow of damaging sanctions, including measures personally targeting President Vladmir Putin, if Russia invades Ukraine. Meanwhile, in the Middle East, the United Arab Emirates is reportedly looking to upgrade its defensive capabilities following the missile and drone attacks on the UAE by Houthi rebels over the past two weeks. Besides, crude oil prices rose despite data showing a larger than expected increase in US crude inventories last week. The Energy Information Administration said that crude oil inventories rose by 2.4 million barrels during the week ended January 21. The Street was expecting an increase of just 150,000 barrels. Benchmark crude oil futures for March delivery rose $1.75 or 2 percent to settle at $87.35 a barrel on the New York Mercantile Exchange. Brent crude for March delivery gained $1.22 or 1.4 percent to settle at $ 88.40 a barrel on London's Intercontinental Exchange.

 

Continuing previous sessions drubbing, Indian rupee concluded substantially weaker against dollar on Tuesday on account of continued dollar demand from importers and banks. Sentiments remained under pressure as ICRA projects fiscal deficit at a higher Rs 17.9 trillion, driven by the two major outlays intended to bolster confidence amongst households, namely free food grains under the PMGKAY scheme and an enhanced outgo for MGNREGA. Traders failed to take solace with the commerce ministry statement that exports of engineering goods rose 54 per cent to $81.8 billion during April-December 2021-22 as compared to the same period of the previous year. In the corresponding nine-month period of 2020-21, exports stood at $52.9 billion. The sector accounted for over 27 per cent in India's total exports basket during the period. On the global front, dollar edged higher on Tuesday to within striking distance of its two-week peak, as investors bought safe-haven currencies amid tensions between Russia and the West over Ukraine while awaiting the outcome of the Federal Reserve's policy meeting. Finally, the rupee ended 74.78 (Provisional), weaker by 18 paise from its previous close of 74.60 on Monday.

 

The FIIs as per Tuesday's data were net sellers in equity segment, while net buyers in debt segment. In equity segment, the gross buying was of Rs 5622.73 crore against gross selling of Rs 9521.92 crore, while in the debt segment, the gross purchase was of Rs 1113.93 crore against gross selling of Rs 80.46 crore. Besides, in the hybrid segment, the gross buying was of Rs 16.90 crore against gross selling of Rs 14.21 crore.

 

The US markets ended mostly lower on Wednesday taking an abrupt nosedive that reversed earlier solid gains after the U.S. Federal Reserve released its statement at the conclusion of its two-day policy meeting. Asian markets are trading mostly in red on Thursday as investors digested Fed Chair Jerome Powell's comments. Indian markets ended a choppy session slightly higher on Tuesday, with Axis Bank's upbeat earnings results, expectations surrounding upcoming Union Budget and a firm trend in European markets offering some support. Markets were closed on Wednesday on account of Republic Day. Today, the markets are likely to make gap-down opening, a day of the monthly expiry of January month derivatives contract. There will be some cautiousness as the International Monetary Fund (IMF) cut India's economic growth forecast to 9 per cent for the current fiscal year ending March 31, joining a host of agencies which have downgraded their projections on concerns over the impact of a spread of new variant of coronavirus on business activity and mobility. Continues selling in FIIs may weight on the markets. As per provisional data available on the NSE, foreign institutional investors (FIIs) net sold shares worth Rs 7,094.48 crore on January 25. Meanwhile, India has initiated an anti-dumping probe against imports of a certain type of tiles, used for covering the floors in residential and commercial buildings, from China, Taiwan and Vietnam following a complaint by domestic players. Gems and jewellery related stocks will be in focus as the commerce ministry said gems and jewellery exports rose by 71 per cent during April-December 2021 to $28.9 billion as compared to $16.9 billion in the same period of the previous year. In December 2021, these exports grew by 16.38 per cent to $2.99 billion. There will be some reaction in aluminium industry stocks as Arguing that growing imports of scrap is threatening the primary aluminium industry, an umbrella industry body has urged the finance minister to raise basic customs duty on aluminium scrap to 10% from 2.5% now. Besides, The Rs 3,600-crore Adani Wilmar IPO will open on Thursday (January 27, 2022), and will close on Monday (January 31). A joint venture between Adani Group and the Wilmar Group, Adani Wilmar is an FMCG food company offering most of the essential kitchen commodities. The edible oil major has fixed a price band of Rs 218-230 per share for the public issue.

 

Support and Resistance: NSE (Nifty) and BSE (Sensex)

 

Index

Previous close

Support

Resistance

NSE Nifty

17,277.95

16,973.45

17,445.80

BSE Sensex

57,858.15

56,856.21

58,413.51

 

Nifty Top volumes

 

Stock

 

Volume

Previous close (Rs)

Support  (Rs)

Resistance (Rs)

(in Lacs)

Axis Bank

380.88

704.60

690.46

736.86

Tata Motors

225.65

478.45

466.56

491.41

State Bank of India

217.91

494.15

482.94

511.44

Power Grid Corporation of India

205.41

214.00

210.56

218.81

ICICI Bank

195.13

798.45

788.24

806.49

 

  • Hero MotoCorp has received approval from its board for investment up to Rs 700 crore in Hero FinCorp. 
  • Axis Bank has reported around 3-fold jump in its consolidated net profit at Rs 3,973.07 crore for Q3FY22 as compared to Rs 1,334.84 crore for Q3FY21. 
  • TCS is now a partner for the newly-launched Microsoft Cloud for Retail, expanding its collaboration with the hyperscaler. 
  • Wipro has received the Palo Alto Networks EMEA Systems Integrator Partner of the year for 2021.
News Analysis