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Market Commentary 05 June 2024
Benchmarks likely to make positive start; Services PMI data eyed

Indian equity benchmarks plunged sharply on Tuesday, losing nearly 6 percent in the session, after the counting of votes showed Prime Minister Narendra Modi's BJP-led NDA alliance past the majority mark but not registering a landslide victory as predicted by most exit polls. After an initial drop, the markets continued to decline, as traders remained cautious as S&P Global Market Intelligence asserts that weak private consumption in India remains the largest concern, with rural demand in particular still straggling to catch up, at a time when the country's overall growth remains strong. For the second consecutive quarter, India's real GDP growth exceeded most forecasts, bringing the full financial year 2023-24 growth to 8.2 per cent. With this, India maintains its status of the world's fastest-growing large economy. Market made some recovery in second half of the day after hitting intraday lows as traders opted to buy beaten down but fundamentally strong stocks. Though, the recovery was not enough to cut most of the losses and key gauges ended with a massive cut of around 6%. Anxiety also came as credit rating agency India Ratings and Research (Ind-Ra) in its latest report has predicted that FY24 was a bittersweet year for the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC), with the average resolution time jumping to a four-year high and the recovery levels at their lowest for corporate debtors (CDs) and financial creditors (FCs) in the past four years.  Traders overlooked a private report stating that strong growth and a narrower fiscal deficit can lead to a sovereign rating upgrade for India. It said the government's commitments on fiscal deficit to 5.1 per cent in FY25 and further down to 4.5 per cent in FY26 look more credible now, and pointed out that the number came in at 5.6 per cent in FY24 as against the budgeted 5.8 per cent. Finally, the BSE Sensex fell 4389.73 points or 5.74% to 72,079.05, and the CNX Nifty was down by 1,379.40 points or 5.93% points to 21,884.50.

The US markets ended volatile session in green on Tuesday amid a notable decrease by treasury yields, which extended the sharp pullback seen over the past few sessions. The yield on the benchmark ten-year note closed lower for the fourth straight session, pulling back further off the nearly one-month closing high set last Wednesday. The continued advance by treasuries came amid signs of weakness in the labor market, with a report from the Labor Department showing a modest decrease in U.S. job openings in the month of April.  The Labor Department said job openings fell to 8.059 million in April from a downwardly revised 8.355 million in March. Street had expected job openings to dip to 8.340 million from the 8.488 million originally reported for the previous month. Bond traders are seemingly optimistic that the weakness in the labor market will encourage the Federal Reserve to lower interest rates in the coming months. On Friday, the Labor Department is scheduled to release its more closely watched monthly jobs report, which could have a significant impact on the outlook for the economy and interest rates. Market participants currently expect the report to show employment jumped by 190,000 jobs in May after climbing by 175,000 jobs in April, while the unemployment rate is expected to hold at 3.9 percent. On the sectoral front, despite the modest gains posted by the major averages, gold stocks moved sharply lower on the day, dragging the NYSE Arca Gold Bugs Index down by 4.2 percent.

Magnifying their previous sessions losses, crude oil futures ended lower on Tuesday, amid concerns about possible oversupply in the market following the decision of the OPEC+ to gradually phase out voluntary production cuts from October. The OPEC's decision to phase out production cuts will see more than 500,000 bpd of crude returning to the market by December. 1.8 million bpd would come back by June of 2025. U.S. manufacturing activity slowed for a second straight month in May and construction spending fell unexpectedly for a second consecutive month in April - adding to signs the world's largest economy is gradually slowing down. Traders now await weekly oil reports from the American Petroleum Institute (API) and U.S. Energy Information Administration (EIA). Benchmark crude oil futures for July delivery fell $0.97 or about 1.3% to settle at $73.25 a barrel on the New York Mercantile Exchange. Brent crude for July delivery was down $0.84 or about 1.07% to $77.52 per barrel on London's Intercontinental Exchange.

Indian rupee ended with massive cut against the US dollar on Tuesday as the ruling BJP is unlikely to muster an absolute majority in the Lok Sabha elections. Sentiments remained down-beat as S&P Global Market Intelligence asserts that weak private consumption in India remains the largest concern, with rural demand in particular still straggling to catch up, at a time when the country's overall growth remains strong. Besides, a massive sell-off in domestic equities and a strong greenback against major currencies overseas added to the gloom. On the global front, dollar ticked up on Tuesday after falling to its lowest against the euro, sterling and Swiss franc since mid-March overnight as signs of a softening U.S. economy boosted the case for earlier Federal Reserve interest rate cuts. Finally, the rupee ended at 83.51 (Provisional), weaker by 37 paise from its previous close of 83.14 on Monday.

The FIIs as per Tuesday's data were net buyers in both equity and debt segments. In equity segment, the gross buying was of Rs 23537.43 crore against gross selling of Rs 16690.31 crore, while in the debt segment, the gross purchase was of Rs 2516.90 crore with gross sales of Rs 252.32 crore. Besides, in the hybrid segment, the gross buying was of Rs 66.38 crore against gross selling of Rs 44.74 crore.

The US markets ended higher on Tuesday following softer-than-expected labor market data that reaffirmed expectations of an interest rate cut by the Federal Reserve. Asian markets are trading mixed on Wednesday in anticipation of Australia's GDP numbers. Indian markets ended with cut of around 6% on Tuesday following the BJP-led NDA's underwhelming performance in the 2024 Lok Sabha elections, falling short of market expectations. Today, markets are likely to make positive start after yesterday's sell-off and following overnight gains on Wall Street. Fall in crude oil prices overnight likely to aid domestic sentiments. Some support will come with a private report that India's world record beating economic growth rate together with robust tax revenues, a fast expanding digital and financial infrastructure and a strong manufacturing sector will give the new government a base for unleashing next generation reforms that may make the country a developed nation by 2047. Market participants will be eyeing the Services PMI data to out later in the day for more directional cues. Investors will be also looking ahead to the Reserve Bank of India's Monetary Policy Committee three-day meeting, which will kick start on June 5, in the immediate backdrop of Lok Sabha election results. RBI Governor Shaktikanta Das will announce the committee's decision on interest rates on June 7. However, there may be some volatility in the markets after outcome of the Lok Sabha 2024 elections. According to reports, the Bharatiya Janata Party (BJP)-led NDA secured 292 seats, while the INDIA Alliance won 234 seats. Other parties managed to secure 17 seats. There may be some cautiousness amid foreign fund outflows. A huge selling was seen from foreign institutional investors (FIIs) on June 4 as they sold Indian equities worth Rs 12,436.22 crore. Moreover, Capital markets regulator Sebi said it has set up a committee to review the ownership and economic structure of clearing corporations and suggest measures to ensure that clearing corporations function as resilient, independent, and neutral risk managers. Telecom stocks will be in focus after the department of telecommunications (DoT) postponed the spectrum auction by 19 days to June 25. This is the second rescheduling of the auction, after it was pushed from May 20 to June 6. Meanwhile, the Central Board of Indirect Taxes and Custom (CBIC) has come out with a draft Central Excise Bill, 2024, which seeks to replace the eight-decade old Central Excise Act, 1944. The move could pave the way for petroleum products to come under the ambit of Goods and Services Tax (GST).

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

Index

Previous close

Support

Resistance

NSE Nifty

21,884.50

21,050.80

22,948.85

BSE Sensex

72,079.05

69,442.16

75,508.19

Nifty Top volumes

Stock

 

Volume

Previous close (Rs)

Support (Rs)

Resistance (Rs)

(in Lacs)

Tata Steel

1250.42

160.00

147.21

173.71

State Bank of India

1223.81

784.60

712.04

877.09

NTPC

840.42

334.90

301.94

379.89

Power Grid

732.62

297.20

272.99

328.19

ONGC

727.80

238.00

212.34

274.34

  • Infosys has collaborated with Nihon Chouzai to expand healthcare access in Japan with enhanced online medication guidance services and payment solutions.
  • ICICI Bank and Adani One have launched India's first co-branded credit cards with airport-linked benefits in collaboration with Visa.
  • Dr. Reddy's Laboratories' company -- Aurigene Pharmaceutical Services has inaugurated its biologics facility spread across 70,000 sq.ft. in Genome Valley, a bio cluster, located in Hyderabad, India.
  • Tech Mahindra has expanded its strategic partnership with Cisco to deliver a next-generation firewall modernization solution for their shared global customers.

News Analysis